Risk, Incentives and Contracts: Partnerships in Rio De Janeiro 1870-1891

30 Pages Posted: 16 Dec 2010 Last revised: 12 Jul 2011

See all articles by Ran Abramitzky

Ran Abramitzky

Stanford University - Department of Economics

Zephyr Frank

affiliation not provided to SSRN

Aprajit Mahajan

University of California, Berkeley - Department of Agricultural & Resource Economics; Stanford University; National Bureau of Economic Research (NBER)

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Date Written: December 14, 2010

Abstract

We construct an individual-level dataset of partnership contracts in late nineteenth century Rio de Janeiro to study the determinants of contract terms. We show that partners with limited liability contributed more capital and received lower draws for private expenses and lower profit shares than their unlimited partners. Unlimited partners in turn received higher-powered incentives when they contracted with limited partners than when they contracted with unlimited partners. A reform that changed the relative bargaining power further improved the terms of unlimited partners in limited firms. These findings highlight the roles of risk, incentives, and bargaining power in shaping contracts.

Keywords: Partnerships, Brazil

JEL Classification: J4, N26, N86

Suggested Citation

Abramitzky, Ran and Frank, Zephyr and Mahajan, Aprajit, Risk, Incentives and Contracts: Partnerships in Rio De Janeiro 1870-1891 (December 14, 2010). Available at SSRN: https://ssrn.com/abstract=1725483 or http://dx.doi.org/10.2139/ssrn.1725483

Ran Abramitzky

Stanford University - Department of Economics ( email )

Stanford, CA 94305
United States

Zephyr Frank

affiliation not provided to SSRN ( email )

Aprajit Mahajan (Contact Author)

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

Stanford University ( email )

Stanford, CA 94305
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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