Centralized and Decentralized Contracts in a Moral Hazard Environment

Autor: Inés Macho-Stadler, J. David Pérez-Castrillo
Rok vydání: 1998
Předmět:
Zdroj: Journal of Industrial Economics. 46:489-510
ISSN: 1467-6451
0022-1821
Popis: We study the optimal allocation of the contracting capacity in a moral hazard environment. Centralizing is superior when the principal is able to establish all the contracts with the agents simultaneously and she is able to monitor side contracting between the agents. Otherwise, decentralizing can be a superior strategy. We apply our results to a firm’s decision on which outlets to franchise. They suggest that franchising is more likely to occur the further the store is from headquarters, the more isolated it is and in those activities where the risk is low. This conclusion is consistent with empirical studies.
Databáze: OpenAIRE