Contracts, Externalities and Incentives in Shopping Malls

39 Pages Posted: 22 Nov 2002

See all articles by Eric D. Gould

Eric D. Gould

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

B. Peter Pashigian (Deceased)

University of Chicago - Graduate School of Business

Canice Prendergast

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2002

Abstract

This Paper demonstrates that mall store contracts are written to internalize externalities through both an efficient allocation and pricing of space and an efficient allocation of incentives across stores. Certain stores generate externalities by drawing customers to other stores, while many stores primarily benefit from external mall traffic. Therefore, to varying degrees, the success of each store depends upon the presence and effort of other stores, and the effort of the developer to attract customers to the mall. Using a unique dataset of mall tenant contracts, we show that rental contracts are written to: (i) efficiently price the net externality of each store, and (ii) align the incentives to induce optimal effort by the developer and each mall store according to the externality of each store's effort.

Keywords: Contracts, externalities, incentives

JEL Classification: J33, L20, R0

Suggested Citation

Gould, Eric D. and Pashigian (Deceased), B. Peter and Prendergast, Canice, Contracts, Externalities and Incentives in Shopping Malls (October 2002). Available at SSRN: https://ssrn.com/abstract=353748

Eric D. Gould (Contact Author)

Hebrew University of Jerusalem - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

B. Peter Pashigian (Deceased)

University of Chicago - Graduate School of Business

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Canice Prendergast

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States
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773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

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