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Managing Uncertainty through Profit Sharing Contracts from Medieval Italy to Silicon Valley

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  • Maria Brouwer

Abstract

Organizational innovation is essential to economic development. But, the way successful societies have organized new ventures has been remarkably similar in both past and present. The commenda organizations of medieval Italy shared many characteristics with modern startups that are financed by venture capital. Profit share contracts; limited liability and periodic reevaluations are cases in point. Agency contracts in both types of ventures are designed to absorb the high uncertainty inherent to these enterprises through risk sharing. Uncertainty prohibits a unique ex ante ranking order of investment projects and prompts investors to look for hidden human capital. Equity finance is better equipped to even out unexpected losses and gains that are inherent to uncertainty than debt finance. Copyright Springer 2005

Suggested Citation

  • Maria Brouwer, 2005. "Managing Uncertainty through Profit Sharing Contracts from Medieval Italy to Silicon Valley," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 9(3), pages 237-255, September.
    • Handle: RePEc:kap:jmgtgv:v:9:y:2005:i:3:p:237-255
    DOI: 10.1007/s10997-005-7420-4
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    References listed on IDEAS

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    1. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
    2. Oz Shy, 1996. "Industrial Organization: Theory and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262691795, April.
    3. Gelderblom, Oscar, 2003. "The Governance of Early Modern Trade: The Case of Hans Thijs, 1556–1611," Enterprise & Society, Cambridge University Press, vol. 4(4), pages 606-639, December.
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    Cited by:

    1. Jerger, Jürgen & Michaelis, Jochen, 2011. "The fixed wage puzzle: Why profit sharing is so hard to implement," Economics Letters, Elsevier, vol. 110(2), pages 104-106, February.
    2. Bruno Bonizzi, 2015. "Capital Market Inflation in Emerging Markets: the Cases of Brazil and South Korea," PSL Quarterly Review, Economia civile, vol. 68(273), pages 115-150.
    3. Hossein Askari & Abbas Mirakhor, 2014. "Risk sharing, public policy and the contribution of Islamic finance," PSL Quarterly Review, Economia civile, vol. 67(271), pages 345-379.
    4. Mirakhor, Abbas, 2010. "Whither Islamic Finance? Risk Sharing in An Age of Crises," MPRA Paper 56341, University Library of Munich, Germany.
    5. Mirakhor, Abbas, 2012. "Islamic Finance, Risk Sharing and Macroeconomic Policies," MPRA Paper 56338, University Library of Munich, Germany.
    6. Abbas Mirakhor, 2014. "Foundations of risk-sharing finance: an Islamic view," Chapters, in: Mervyn K. Lewis & Mohamed Ariff & Shamsher Mohamad (ed.), Risk and Regulation of Islamic Banking, chapter 6, pages 107-128, Edward Elgar Publishing.
    7. Hossein Askari & Noureddine Krichene, 2014. "Islamic finance: an alternative financial system for stability, equity, and growth," PSL Quarterly Review, Economia civile, vol. 67(268), pages 9-54.
    8. Obiyathulla Ismath Bacha, Abbas Mirakhor, Hossein Askari, 2015. "Risk Sharing in Corporate and Public Finance: The Contribution of Islamic Finance," PSL Quarterly Review, Economia civile, vol. 68(274), pages 187-213.
    9. Hossein Askari, 2015. "Severe Financial Crises and Fundamental Reforms: The Benefits of Risk-Sharing الأزمات المالية الخطيرة والإصلاحات الأساسية: فوائد تقاسم المخاطر," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 28(1), pages 93-128, January.
    10. Kaouthar Lajili, 2015. "Embedding human capital into governance design: a conceptual framework," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(4), pages 741-762, November.
    11. Gerald A. Edwards, Jr. & Herbert Poenisch & Michael Zamorski & Mark Mckenzie & Obiyathulla Ismath Bacha & Daud Vicary Abdullah, 2016. "SEACEN Financial Stability Journal Volume 7 2016," SEACEN Financial Stability Journal, South East Asian Central Banks (SEACEN) Research and Training Centre, number sfv7.

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