The Entrepreneur’s Reward for Self-Policing

Economic Inquiry, Vol. 25, No. 1, 1987

Posted: 29 Aug 2012

Date Written: January 1, 1987

Abstract

The collaboration among people is often subject to shirking; the net gain from the collaboration depends on the contract governing it. I argue that the entrepreneur assumes the role of the residual claimant because his actions are more costly to monitor than those of the factors with which he collaborates. By offering fixed pay contracts to others and himself becoming residual claimant, the entrepreneur curtails his incentive to gain at the expense of his partners, and the net gain from the collaboration is then maximized. Costly monitoring applies to both labor and capital, and thus the entrepreneur may supply both labor services and capital. The entrepreneur's capital serves to guarantee the pay of the other factors.

Keywords: Businessmen, contracts, labor service, capital

Suggested Citation

Barzel, Yoram, The Entrepreneur’s Reward for Self-Policing (January 1, 1987). Economic Inquiry, Vol. 25, No. 1, 1987, Available at SSRN: https://ssrn.com/abstract=2138441

Yoram Barzel (Contact Author)

University of Washington ( email )

Box 353330
Seattle, WA 98195-3330
United States
206-543-2510 (Phone)
206-685-7477 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
237
PlumX Metrics