Journal article
In-House and Arm's Length: Productivity Heterogeneity and Variation in Organizational Form
Journal of law, economics, & organization, Vol.36(3), pp.415-460
11/01/2020
DOI: 10.1093/jleo/ewaa003
Abstract
This paper analyzes firm boundaries in the US hotel industry. Hotel properties of a given brand are often managed either by a chain employee or by a franchisee. We document that brand properties with the lowest and the highest occupancy rates are more likely to be managed at arm's length by franchisees. Variation in organizational form is consistent with a model in which the incentives embodied in management contracts vary with property-level productivity. We infer that most hotel chains franchise low-productivity relationships to keep property-level fixed costs low and franchise the most productive relationships to create high-powered incentives for franchisees. Franchisees of high-productivity properties face stronger incentives than the managers of both chain-managed properties and low-productivity franchises because the performance incentives in franchise contracts are proportional to hotel revenues and complement the incentives from franchisees' property control rights.
Details
- Title: Subtitle
- In-House and Arm's Length: Productivity Heterogeneity and Variation in Organizational Form
- Creators
- Stephen F. Lin - Federal ReserveCatherine Thomas - London School of Economics and Political ScienceArturs Kalnins - University of Iowa
- Resource Type
- Journal article
- Publication Details
- Journal of law, economics, & organization, Vol.36(3), pp.415-460
- DOI
- 10.1093/jleo/ewaa003
- ISSN
- 8756-6222
- eISSN
- 1465-7341
- Publisher
- Oxford Univ Press
- Number of pages
- 46
- Grant note
- ES/M010341/1 / ESRC; UK Research & Innovation (UKRI); Economic & Social Research Council (ESRC)
- Language
- English
- Date published
- 11/01/2020
- Academic Unit
- Management and Entrepreneurship
- Record Identifier
- 9984380435202771
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