Original Article
Estimating the benefits and costs of forming business partnerships
Jungho Lee,
Corresponding Author
Jungho Lee
School of Economics, Singapore Management University
Search for more papers by this authorJungho Lee,
Corresponding Author
Jungho Lee
School of Economics, Singapore Management University
Search for more papers by this authorI thank the editor, Chad Syverson, and two anonymous referees for their helpful comments. This article is based on the first chapter of my PhD dissertation at Washington University in St. Louis, and was circulated under the title “Why Form Business Partnerships.” I am greatly indebted to Barton H. Hamilton for his guidance and advice. I am also very grateful to Tat Chan, George-Levi Gayle, and Carl Sanders for their help and feedback on this project. I thank Mariagiovanna Baccara, Kyoung Jin Choi, Ignacio Esponda, Nicolas L. Jacquet, Yumi Koh, Takashi Kunimoto, Gea M. Lee, Patrick Legros, Sunha Myong, JungJae Park, Thomas Sargent, Bernardo Silveira, Aloysius Siow, Jingyi Xue, and Yichong Zhang for helpful discussions. All errors are my own.
Abstract
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.
Supporting Information
| Filename | Description |
|---|---|
| rand12324-sup-0001-SuppMat.pdf249 KB | Table 1: Number of Observations at Each Stage of Sample Construction Table 2: Proportion of African-Americans with Respect to Income Quintiles Table 3: Transfer and Failure |
| rand12324-sup-0002-SuppMat.zip10.6 KB | Supplementary Material |
Please note: The publisher is not responsible for the content or functionality of any supporting information supplied by the authors. Any queries (other than missing content) should be directed to the corresponding author for the article.
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