University of Paris, Pantheon-Sorbonne
Institutional Affiliation: University of Paris, Pantheon-Sorbonne
NBER Working Papers and Publications
|March 2002||The Role of Residual Claims and Self-Enforcement in Franchise Contracting|
with Francine Lafontaine: w8868
Much of the economic literature on franchising has been concerned with incentive issues and how these are managed in franchised contracts. Two main types of incentive mechanisms have been identified: residual claims and self enforcement. In this paper we describe these incentive mechanisms, and their use in franchise contracts. We argue that although these two types of mechanisms are usually thought of as alternative ways to align franchisee and franchisor incentives, they are in fact complementary in franchise contracts because they address different incentive problems. We explore what these incentive problems are, and then describe specifically how franchise contract terms and practices support each type of incentive mechanism. Finally, we discuss briefly, via two examples, how our ...