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Risk, Incentives, and Contracts: Partnerships in Rio de Janeiro, 1870–1891

Published online by Cambridge University Press:  01 September 2010

Ran Abramitzky ,
Zephyr Frank  and
Aprajit Mahajan
Ran Abramitzky*
Affiliation:
Assistant Professor of Economics, Stanford University, 450 Serra Mall, Stanford, CA 94305-6072. E-mail: [email protected].
Zephyr Frank*
Affiliation:
Associate Professor of Latin American History, Stanford University, 450 Serra Mall, Stanford, CA 94305-6072. E-mail: [email protected].
Aprajit Mahajan*
Affiliation:
Assistant Professor of Economics, Stanford University, 450 Serra Mall, Stanford, CA 94305-6072. E-mail: [email protected].
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Abstract

We construct an individual-level data set of partnership contracts in late-nineteenth-century Rio de Janeiro to study the determinants of contract terms. Partners with limited liability contributed more capital and received lower draws for private expenses and lower profit shares than their unlimited partners. Unlimited partners in turn received higher-powered incentives when they contracted with limited partners than when they contracted with unlimited partners. A reform that changed the relative bargaining power further improved the terms of unlimited partners in limited firms. These findings highlight the roles of risk, incentives, and bargaining power in shaping contracts.

Type
ARTICLES
Information
The Journal of Economic History , Volume 70 , Issue 3 , September 2010 , pp. 686 - 715
Copyright
Copyright © The Economic History Association 2010

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