Separation of Ownership and Control: Delegation as a Commitment Device

Aristotelis Boukouras

Research output: Working paper

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 languageEnglish
Publication statusPublished - 2013

Keywords / Materials (for Non-textual outputs)

  • control structure
  • efficiency wage
  • moral hazard
  • private benefits
  • separation of ownership and control
  • time-inconsistency

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