Risk, Incentives and Contracts: Partnerships in Rio de Janeiro, 1870-1891

Posted: 10 Jan 2010

See all articles by Ran Abramitzky

Ran Abramitzky

Stanford University - Department of Economics

Zephyr Frank

affiliation not provided to SSRN

Aprajit Mahajan

Stanford University; University of California, Berkeley - Department of Agricultural & Resource Economics; National Bureau of Economic Research (NBER)

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Date Written: January 9, 2010

Abstract

We use newly-constructed individual-level data on partnership contracts in late nineteenth century Rio de Janeiro to study the determinants of contract terms. We document that partners with and without limited liability both contributed capital and received profit shares, and that both types of partners received salaries despite limited partners not taking an active role in management. Partners with limited liability contributed more capital and received lower salaries and profit shares than their unlimited partners. Unlimited partners in turn received higher-powered incentives when they contracted with limited partners than when they contracted with unlimited partners. A reform that changed the relative bargaining power further improved the terms of unlimited partners in limited firms. These findings highlight the roles of risk, incentives, and bargaining power in shaping contracts.

Keywords: Partnerships, Brazil, Risk, Incentives

JEL Classification: J4, N26, N86

Suggested Citation

Abramitzky, Ran and Frank, Zephyr and Mahajan, Aprajit, Risk, Incentives and Contracts: Partnerships in Rio de Janeiro, 1870-1891 (January 9, 2010). Available at SSRN: https://ssrn.com/abstract=1533691

Ran Abramitzky

Stanford University - Department of Economics ( email )

Stanford, CA 94305
United States

Zephyr Frank

affiliation not provided to SSRN ( email )

Aprajit Mahajan (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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