Risk, Incentives and Contracts: Partnerships in Rio De Janeiro 1870-1891
30 Pages Posted: 16 Dec 2010 Last revised: 12 Jul 2011
Date Written: December 14, 2010
We construct an individual-level dataset of partnership contracts in late nineteenth century Rio de Janeiro to study the determinants of contract terms. We show that partners with limited liability contributed more capital and received lower draws for private expenses and lower 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
JEL Classification: J4, N26, N86
Suggested Citation: Suggested Citation