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Ownership, Control, and Incentive

Wang, Tianxi (2009) Ownership, Control, and Incentive. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers 676.


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The paper shows that the principal can enhance her control over the agent's human capital by acquiring the physical capital that is critical for him to create value. However, the enhancement in the control necessarily reduces his incentive to make human capital investment ex ante and to exert effort ex post. This trade-off between control and incentive thus decides the boundary of the firm. The paper also presents a rationale for M-form firms: centralized ownership of physical capital to facilitate coordination, and dispersed payoff rights to incentivize divisions.

Item Type: Monograph (Working Paper)
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 12 Jul 2012 16:13
Last Modified: 06 Jan 2022 13:37

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