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On the existence of share contracts under limited liability

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  • Dam, Kaniṣka
  • Ruiz Pérez, Daniel

Abstract

In a principal-agent relationship under limited liability, the agent in general receives the full share of revenue. We show that when the agent exerts effort in multiple tasks, the effort substitution effect helps explain the existence of share contracts even under limited liability.

Suggested Citation

  • Dam, Kaniṣka & Ruiz Pérez, Daniel, 2012. "On the existence of share contracts under limited liability," Economics Letters, Elsevier, vol. 117(3), pages 552-555.
    • Handle: RePEc:eee:ecolet:v:117:y:2012:i:3:p:552-555
    DOI: 10.1016/j.econlet.2012.07.035
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    References listed on IDEAS

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    1. Ghatak, Maitreesh & Pandey, Priyanka, 2000. "Contract choice in agriculture with joint moral hazard in effort and risk," Journal of Development Economics, Elsevier, vol. 63(2), pages 303-326, December.
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    3. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
    4. Eswaran, Mukesh & Kotwal, Ashok, 1985. "A Theory of Contractual Structure in Agriculture," American Economic Review, American Economic Association, vol. 75(3), pages 352-367, June.
    5. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October.
    6. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    7. Mathewson, G Frank & Winter, Ralph A, 1985. "The Economics of Franchise Contracts," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 503-526, October.
    8. Rajiv Lal, 1990. "Improving Channel Coordination Through Franchising," Marketing Science, INFORMS, vol. 9(4), pages 299-318.
    9. Tridip Ray, 2005. "Sharecropping, Land Exploitation And Land‐Improving Investments," The Japanese Economic Review, Japanese Economic Association, vol. 56(2), pages 127-143, June.
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    Cited by:

    1. Jiancai PI, 2013. "An organizational economics approach to the existence of sharecropping," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 59(11), pages 537-541.
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    3. Mahmoud Sami Nabi, 2016. "Revisiting equity and debt: access to finance and economic inefficiency," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 63(4), pages 393-429, December.
    4. Wei Zhang & Hsiao-Hui Lee, 2022. "Investment Strategies for Sourcing a New Technology in the Presence of a Mature Technology," Management Science, INFORMS, vol. 68(6), pages 4631-4644, June.

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    More about this item

    Keywords

    Multitasking; Effort substitution; Share contracts;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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