Essays on Business Partnerships
Date of Award
Doctor of Philosophy (PhD)
Chapter 1: Why Form Business Partnerships?
I empirically investigate why some people find a business partner when they first start a business. To this end, I structually estimate a matching model of partnership formation by using a nationally representative household-based survey. First, I find that most aggregate gains from partnerships are generated by gains in productivity. However, for partners with a net worth that is less than the 20th percentile of wealth distribution, 80% of gains are generated by financing. Second, the transition into business ownership hindered by financial friction is not much alleviated by allowing the option to form business partnerships. Financial friction generates additional inefficiency due to mismatch among partners. A loan program for startups can substantially improve match quality among partners. Finally, moral hazard, the problem of inducing optimal effort by partners when effort is not observable, can be costly. For the observed partners, the cost corresponds to 39% of the entire gain from partnerships. Moreover, 57% of partners are discouraged from partnerships due to moral hazard.
Chapter 2: Capital Accumulation and Limited Commitment (with Kyoung Jin Choi)
We investigate under what condition the first-best allocation without commitment is sustainable in a production economy. We find that allowing capital accumulation can help to sustain the first-best allocation, although it is known to create a distortion. In an economy with productivity shocks, gains from efficient resource allocation between agents can be so large that it can compensate for the increase in the outside option that arises when capital moves to the more productive agent from the less productive agent.
Chapter 3: The Dynamic Incentives of Entrepreneurs and the Small Firm Effect (with Barton H. Hamilton, Carl Sanders and Andres Hincapie)
The small firm effect is the tendency of workers in small firms, as opposed to large firms, to become business owners. Using the National Longitudinal Surveys 1979, we evaluate the extent to which the small firm effect is explained by entrepreneurial skill accumulation in small firms. To this end, we develop and estimate a dynamic occupational choice model which incorporates a different impact of small and large firm experience on entrepreneurial outcomes. The estimated model suggests that the entrepreneurial skill accumulation in small firms cannot explain the small firm effect alone: the transition from small firms, relative to large firms, to self-employment is too high without a non-pecuniary benefit associated with it.
Chair and Committee
Barton H. Hamilton
Tat Chan, George-Levi Gayle, Juan Pantano, Carl Sanders
Lee, Jungho, "Essays on Business Partnerships" (2015). Arts & Sciences Electronic Theses and Dissertations. 418.