The role of individual financial contributions in the formation of entrepreneurial teams

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This paper studies how entrepreneurs, limited in how much they are able to contribute to a joint business, organize in partnerships, and how this process is impacted by the frictions common for team production. It demonstrates that moral hazard and reliance on simple equity sharing contracts create incentives for the entrepreneurs making large contributions to team up together, even if the production technology exhibits decreasing returns to scale to total investment. The paper formalizes this novel mechanism in a matching model and illustrates that the model's predictions regarding co-owners’ financial contributions and ownership shares are consistent with the empirical evidence from the Kauffman Firm Survey data.

Original languageEnglish (US)
Pages (from-to)173-193
Number of pages21
JournalEuropean Economic Review
Volume113
DOIs
StatePublished - Apr 1 2019

Fingerprint

Entrepreneurial teams
Entrepreneurs
Incentive contracts
Team production
Matching model
Prediction model
Moral hazard
Production technology
Friction
Owners
Empirical evidence
Equity
Survey data
Share ownership
Returns to scale

Keywords

  • Assortative matching
  • Borrowing constraints
  • Entrepreneurship
  • Equity sharing
  • Moral hazard
  • Partnerships
  • Team production

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

The role of individual financial contributions in the formation of entrepreneurial teams. / Vereshchagina, Galina.

In: European Economic Review, Vol. 113, 01.04.2019, p. 173-193.

Research output: Contribution to journalArticle

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