Contracts, Externalities, and Incentives in Shopping Malls

36 Pages Posted: 26 Jun 2002  

Eric D. Gould

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

B. Peter Pashigian (Deceased)

University of Chicago - Graduate School of Business

Canice Prendergast

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2002

Abstract

This paper demonstrates that mall store contracts are written to internalize externalities through both an efficient allocation and pricing of space, and an efficient allocation of incentives across stores. Certain stores generate externalities by drawing customers to other stores, while many stores primarily benefit from external mall traffic. Therefore, to varying degrees, the success of each store depends upon the presence and effort of other stores, and the effort of the developer to attract customers to the mall. Using a unique data set of mall tenant contracts, we show that rental contracts are written to: (i) efficiently price the net externality of each store, and (ii) align the incentives to induce optimal effort by the developer and each mall store according to the externality of each store's effort.

Keywords: Contracts, Externalities, Incentives

JEL Classification: L20, J33, R00

Suggested Citation

Gould, Eric D. and Pashigian (Deceased), B. Peter and Prendergast, Canice, Contracts, Externalities, and Incentives in Shopping Malls (January 2002). Available at SSRN: https://ssrn.com/abstract=315503 or http://dx.doi.org/10.2139/ssrn.315503

Eric D. Gould (Contact Author)

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel
+972 2 588 3247 (Phone)
+972 2 581 6071 (Fax)

HOME PAGE: https://sites.google.com/site/edgould

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

B. Peter Pashigian (Deceased)

University of Chicago - Graduate School of Business

N/A

Canice Prendergast

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7309 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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