Optimal Design of Limited Partnership Agreements
General partners (GP) are sometimes paid on a deal-by-deal basis and other times on a whole-portfolio basis. When is one method of payment better than the other? I show that when assets (projects or firms) are highly correlated or when GPs have low reputation, whole-portfolio contracting is superior to deal-by-deal contracting. In this case, by bundling payouts together, whole-portfolio contracting enhances incentives for GPs to exert effort. Therefore, it is better suited to alleviate the moral hazard problem which is stronger than the adverse selection problem in the case of high correlation of assets or low reputation of GPs. In contrast, for low correlation of assets or high reputation of GPs, information asymmetry concerns dominate and deal-by-deal contracts become optimal, as they can efficiently weed out bad projects one by one. These results shed light on recent empirical findings on the relationship between investors and venture capitalists.
Code (0)
등록된 구현이 없습니다.
Methods 이 논문이 사용한 방법론
Similar Papers 제목 키워드 기반
Privacy-Preserving Dataset Combination
Access to diverse, high-quality datasets is crucial for machine learning model performance, yet data sharing remains limited by privacy concerns and competitive interests, particularly in regulated domains like healthcar…
Mortality PredictionPrivacy PreservingSupporting Family-School Partnerships with Robot-Facilitated Home-Based Activities
Family-school partnerships (FSP) are critical to children's development, yet families often face barriers such as time constraints, fragmented communication, and limited opportunities for meaningful engagement. As a step…
Smart treaties: A path to binding agreements in international relations?
Can we create binding agreements between nations? Recently, scholars have argued that blockchain technology enables us to do so. Given that this could greatly affect the anarchical world order implied by state sovereignt…
Governing dual-use technologies: Case studies of international security agreements and lessons for AI governance
International AI governance agreements and institutions may play an important role in reducing global security risks from advanced AI. To inform the design of such agreements and institutions, we conducted case studies o…
Dyadic Partnership(DP): A Missing Link Towards Full Autonomy in Medical Robotics
For the past decades medical robotic solutions were mostly based on the concept of tele-manipulation. While their design was extremely intelligent, allowing for better access, improved dexterity, reduced tremor, and impr…
Intent RecognitionDecision Making