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Contractual allocation of decision rights and incentives: the case of automobile distribution

Arruñada, Benito, Garicano, Luis and Vázquez, Luis (2001) Contractual allocation of decision rights and incentives: the case of automobile distribution. Journal of Law, Economics, and Organization, 17 (1). pp. 257-284. ISSN 8756-6222

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Identification Number: 10.1093/jleo/17.1.257


We analyze empirically the allocation of rights and monetary incentives in automobile franchise contracts. All of these contracts substantially restrict the decision rights of dealers and grant manufacturers extensive rights to specify and enforce dealers' duties. The allocation of decision rights and incentive intensity differs across brands, however. This variation is explained by the incidence of moral hazard. In particular, when the cost of dealer moral hazard is higher and the risk of manufacturer opportunism is lower, manufacturers hold more rights to determine the performance required from their dealers and to use mechanisms such as monitoring, termination, and monetary incentives to ensure that such performance is provided.

Item Type: Article
Official URL:
Additional Information: © 2001 Oxford University Press
Divisions: Management
Centre for Economic Performance
Subjects: H Social Sciences > HD Industries. Land use. Labor
Sets: Research centres and groups > Managerial Economics and Strategy Group
Departments > Management
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 03 Nov 2009 16:26
Last Modified: 20 Mar 2021 01:27

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