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Preliminary evidence on the appointment of institutional solutions to franchisor moral hazard-the case of franchisee councils

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  • Olivier Cochet

    (Westfälische Wilhelms-Universität Münster, Department of Strategic Management, Münster, Germany)

  • Thomas Ehrmann

    (Westfälische Wilhelms-Universität Münster, Department of Strategic Management, Münster, Germany)

Abstract

Besides franchisee opportunistic behavior, franchisor moral hazard is a central concern in franchise chains. Economic literature thus far focused on the sharing of franchisee revenues as an incentive for curbing franchisor malfeasance. In this paper, we ask whether and how the obligations of chains may be enforced through institutional arrangements like franchisee councils. Consistent with expectations, the appointment of a council empirically turned out to be more likely as decision rights-a proxy for the scope of moral hazard-were increasingly allocated to companies' management. We found this relationship to be negatively moderated by the contractual share parameter. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • Olivier Cochet & Thomas Ehrmann, 2007. "Preliminary evidence on the appointment of institutional solutions to franchisor moral hazard-the case of franchisee councils," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 41-55.
    • Handle: RePEc:wly:mgtdec:v:28:y:2007:i:1:p:41-55
    DOI: 10.1002/mde.1312
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    References listed on IDEAS

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    Cited by:

    1. Evelien Croonen, 2010. "Trust and Fairness During Strategic Change Processes in Franchise Systems," Journal of Business Ethics, Springer, vol. 95(2), pages 191-209, August.
    2. Nicholas Argyres & Janet Bercovitz, 2015. "Franchisee Associations as Sources of Bargaining Power? Some Evidence," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(4), pages 811-832, October.
    3. Lawrence, Benjamin & Kaufmann, Patrick J., 2011. "Identity in Franchise Systems: The Role of Franchisee Associations," Journal of Retailing, Elsevier, vol. 87(3), pages 285-305.
    4. Thomas Ehrmann & Julian Dormann, 2008. "Inter-Organisationale Ausgestaltung der Entscheidungszentralisierung und produktive Effizienz: Eine empirische Analyse am Beispiel des Franchising," Schmalenbach Journal of Business Research, Springer, vol. 60(4), pages 326-354, June.
    5. Alessandro Giudici & James G. Combs & Benedetto Lorenzo Cannatelli & Brett R. Smith, 2020. "Successful Scaling in Social Franchising: The Case of Impact Hub," Entrepreneurship Theory and Practice, , vol. 44(2), pages 288-314, March.

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