Publication in Bulletin of Business and Economics, BBE – Leading article

The article: “Efficiency in a Monotonic Partnership with Investment: An endogenous implementation of Holmström’s Principal” has been published in Bulletin of Business and Economics as the leading article of the issue 4(3).

Abstract
This note presents a model of a partnership that requires initial investment. The production technology depends on partners’ effort choices and, possibly, on an exogenous stochastic term. When the technology is monotonic, the paper shows that the need for an investor is a sufficient condition to ensure efficiency. Efficient sharing rules arise endogenously as outcomes of optimal contracts between the investor and the partners. This result illustrates how a Principal-agent structure can naturally arise in a partnership, without changing its basic internal structure. Indeed, the investor emerges as an (external) implementation of a budget-breaker Principal that solves the inefficiency problem inherent to partnerships, as suggested in Holmström (1982).

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s