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Preliminary evidence on the appointment of institutional solutions to franchisor moral hazard—the case of franchisee councils
Author(s) -
Cochet Olivier,
Ehrmann Thomas
Publication year - 2007
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1312
Subject(s) - moral hazard , franchise , incentive , proxy (statistics) , scope (computer science) , business , revenue sharing , revenue , economics , microeconomics , public economics , actuarial science , finance , marketing , machine learning , computer science , programming language
Besides franchisee opportunistic behavior, franchisor moral hazard is a central concern in franchise chains. Economic literature thus far focused on the sharing of franchisee revenues as an incentive for curbing franchisor malfeasance. In this paper, we ask whether and how the obligations of chains may be enforced through institutional arrangements like franchisee councils. Consistent with expectations, the appointment of a council empirically turned out to be more likely as decision rights—a proxy for the scope of moral hazard—were increasingly allocated to companies' management. We found this relationship to be negatively moderated by the contractual share parameter. Copyright © 2007 John Wiley & Sons, Ltd.