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Estimating the benefits and costs of forming business partnerships
Author(s) -
Lee Jungho
Publication year - 2020
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12324
Subject(s) - moral hazard , productivity , loan , general partnership , welfare , matching (statistics) , business , quartile , distribution (mathematics) , economics , finance , public economics , labour economics , actuarial science , microeconomics , economic growth , incentive , market economy , confidence interval , mathematical analysis , statistics , mathematics
I estimate a matching model of business‐partnership formation to quantify the relative importance of productivity gains, financing gains, and the coordination failure of effort provision (moral hazard) among partners. Productivity gains account for 61% of the gain from the observed partnerships. For partners in the first quartile of the wealth distribution, however, financing accounts for 93% of the gain. The cost of moral hazard corresponds to 42% of the entire gain from partnerships. A loan policy specifically targeting partnerships is less effective in improving welfare than a conventional loan policy that provides loans to individual entrepreneurs.