Motivating Wealth-Constrained Actors
- 1 September 2000
- journal article
- Published by American Economic Association in American Economic Review
- Vol. 90 (4), 944-960
- https://doi.org/10.1257/aer.90.4.944
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. (JEL D82, D44, D20)Keywords
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