Abstract / Description of output
This paper provides a theoretical model for explaining the separation of ownership and control in firms. An entrepreneur hires a worker for providing effort to complete a project. The worker's effort determines the probability that the project is completed on time, but the worker receives unobservable benefits for every period she is employed. We show that hiring a manager on a short-term contract may increase the firm value and we identify the conditions under which separation of ownership and control is optimal. The model is consistent with empirical findings.
Original language | English |
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Publication status | Published - 2013 |
Keywords / Materials (for Non-textual outputs)
- control structure
- efficiency wage
- moral hazard
- private benefits
- separation of ownership and control
- time-inconsistency