Faculty of Economics and Business Administration Publications Database

Contract Design, Organizational Form, and System Size with Externalities in Franchising

Volume: 2
Pages: 133 - 147
Link External Source: Online Version
Year: 2014
Keywords: Double moral hazard; Franchising; Externalities; Incentive contracts; Organizational structure

This article employs principal-agent analysis based on double moral hazard to investigate the design of incentive contracts and organizational structure in franchising in the presence of externalities. The results provide a possible explanation for the mixed empirical evidence concerning the impact of franchise system size on components of franchise contracts. Expanding the franchise system is then not necessarily beneficial in the presence of positive externalities.