TY  - RPRT
        AU  - Schnedler, Wendelin
AU  - Sunde, Uwe
        TI  - The Hold-Down Problem and the Boundaries of the Firm: Lesson from a Hidden Action Model with Endogenous Outside Option
        PY  - 2002/Mar/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 464
        UR  - https://www.iza.org/publications/dp464
        AB  - This paper offers a rationale for limiting the delegation of (real) authority, which neither relies
on insurance arguments nor depends on ownership structure. We analyse a repeated hidden
action model in which the actions of a risk neutral agent determine his future outside option.
Consequently, the agent can improve his future bargaining position, which gives the principal
an incentive to retain sufficient control over the agent’s actions. Using respective one-period
contracts, the principal can implement the efficient outcome while “selling the shop” to the
agent is sub-optimal. This provides an argument for integration if the boundary of the firm is
defined by control rights rather than the entitlement to revenues.
        KW  - hidden action
KW  - moral hazard
KW  - endogenous outside option
KW  - authority
KW  - outsourcing
        ER  -