American Economic Review Vol. 90 No. 4 2000
Motivating Wealth-Constrained Actors
Abstract
We examine how owners of productive resources (e.g., public enterprises or financial capital) optimally allocate their resources among wealth-constrained operators of unknown ability. Optimal allocations exhibit: (1) shared enterprise profit—the resource owner always shares the operator's profit; (2) dispersed enterprise ownership—resources are widely distributed among operators of varying ability; (3) limited benefits of competition—the owner may not benefit from increased competition for the resource; and, sometimes, (4) diluted incentives for the most capable—more capable operators receive smaller shares of the returns they generate. Implications for privatizations and venture capital arrangements are explored.
- DOI
- 10.1257/aer.90.4.944
- Volume
- 90
- Issue
- 4
- Pages
- 944-960
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref