The Division of Ownership in New Ventures

The current study investigates a tripartite incentive contract between an innovator supplying an intellectual asset, a professional assigned to productive tasks, and a consulting firm specializing in matching ideas and professional skills. A rather simple pure tripartite partnership implements the consultant´s expected profit maximum and maximizes the project`s expected surplus. The liquidity-constrained professional is compensated by receiving a share of one half in the new venture. The consultant´s and the innovator´s shares reflect the relative value of search. However, the consultant´s optimal search effort to find an appropriate production partner is inefficiently low.New ventures, tripartite incentive contract, consulting contract, partnerships

The emergence of a new economy: An O-Ring approach

The O-Ring theory provides a framework for analyzing the effects of team production on the emergence of firms in the New Economy. Given risk-aversion of the potential team members, the productive advantage of perfect ability matching in teams suffices to establish an equilibrium which separates Old and New Economy. In particular, it is not necessary to assume that firms in the New Economy possess exclusive access to a superior production technology. It must only be true that individual abilities can be observed in partnerships which self-manage production and consequently distribute the surplus among the team members. At the same time, abilities remain private information of the employees in managed firms organized on behalf of a profit-maximizing residual claimant

Recruitment of Seemingly Overeducated Personnel: Insider-Outsider Effects on Fair Employee Selection Practices

We analyze a standard employee selection model given two institutional constraints: First, professional experience perfectly substitutes insufficient formal education for insiders while this substitution is imperfect for outsiders. Second, in the latter case the respective substitution rate increases with the advertised minimum educational requirement. Optimal selection implies that the expected level of formal education is higher for outsider than for insider recruits. Moreover, this difference in educational attainments increases with lower optimal minimum educational job requirements. Investigating data of a large US public employer confirms both of the above theoretical implications. Generally, the econometric model exhibits a �good fit�.employee selection, overeducation, adverse impact, insiders vs outsiders

Implicit vs. Explicit Incentives: Theory and a Case Study

We derive the optimal contract between a principal and a liquidity-constrained agent in a stochastically repeated environment. The contract comprises a court-enforceable explicit bonus rule and an implicit fixed salary promise that must be self-enforcing. Since the agent’s rent increases with bonus pay, the principal implements the maximum credible salary promise. Thus, the bonus increases while the salary promise and the agent’s effort decrease with a higher probability of premature contract termination. We subject this mechanism to econometric testing using personnel data of an insurance company. The empirical results strongly support our theoretical predictions.implicit contract, explicit bonus pay, premature contract termination, compensation and productivity estimates

Warum gibt es kein "Silicon Valley" in Deutschland?

An mehreren Orten in den USA entstanden in den vergangenen Jahrzehnten Zentren privater Forschungs- und Gründungsaktivitäten, von denen das Silicon Valley südlich von San Francisco wohl das bekannteste ist. Nahe der privat finanzierten Stanford University entstand ein Forschungs- und Industriegebiet, das sich bis heute zur weltweit größten Agglomeration forschungsintensiver Privatunternehmen mauserte. Weltweit wird versucht diese Entwicklung nachzuahmen und in Universitätsnähe private Forschungsparks zu etablieren. Jedoch blieb trotz zum Teil erheblicher staatlicher Hilfen eine vergleichbare Entwicklung meist aus. So stellt sich einerseits die Frage, worin der Unterschied besteht, und andererseits, ob es überhaupt wünschenswert ist, mit staatlichen Transfers solche Zentren aufzubauen. Erklärungsversuche sollten dabei ins Kalkül ziehen, wieso Menschen ein Unternehmen gründen

Management takeover battles and the role of the golden handshake

The effect of severance pay on management behavior during a takeover battle is generally ambiguous. Yet, the severance payment completely restraining all influence activities always constitutes a golden handshake. The manager leaving office still benefits from the increase in the merged firm's total value. Moreover, given that the managers are compensated according to an identical linear incentive scheme, the optimal shareholder policy always entails a corner solution. Managers will either receive no severance pay, or the payment will be chosen such that their influence activities equal zero. Relatively strong incentive intensities and low synergy gains then imply that offering no severance pay dominates

On 'Golden Parachutes' as Manager Discipline

mergers, contests, golden parachute

Recruitment of Overeducated Personnel: Insider-Outsider Effects on Fair Employee Selection Practices

employee selection, overeducation, adverse impact, insiders vs outsiders

Adverse selection and the economic limits of market substitution: An application to e-commerce and traditional trade in used cars

Adverse selection induces economic limits to market substitution. If quality uncertainty persists in both internet and traditional marketplaces, a second-best equilibrium with parallel market segments may arise. Positive trade in parallel segments implies that the information cost advantage of one marketplace is exactly offset by a more severe adverse selection problem associated with non-observable quality variables. The electronic marketplace providing dominant search means contains all segments, while the traditional market may lack some segments. These missing segments are characterized by low quality expectations given the vector of advertised quality signals. The analytic results are confirmed by an empirical investigation of used-car trade. Thus, the study also provides an estimate of the price differential between the electronic and the traditional marketplace

Entrepreneurial Elites: Industry Structure Investment, and Welfare Effects of Incubating New Businesses

complementary abilities, entrepreneurial partnership, spin-off, incubator organization, random vs. rational matching