Publications
Publications

Controlling Versus Enabling

By: Andrei Hagiu and Julian Wright
  • Format:Print
  • | Language:English
  • | Pages:38
ShareBar

Abstract

Revenue sharing between principals and agents is commonly used to balance double-sided moral hazard. We provide a theory of how, when such revenue-sharing is optimal, a principal allocates control rights over decisions that either party could make. We show that the principal either keeps control over all such decisions, or gives up control entirely, and that this choice is aligned with whether the principal chooses to keep more or less than 50% of variable revenues. We explore how moral hazard, contractibility, and spillovers affect this choice. The theory helps explain whether professionals operate as employees or as independent contractors.

Keywords

Control Rights; Decision Authority; Employment; Independent Contractors; Organizational Theory; Digital Platforms; Governance Controls; Ethics; Vertical Integration

Citation

Hagiu, Andrei, and Julian Wright. "Controlling Versus Enabling." Harvard Business School Working Paper, No. 16-002, July 2015. (Revised July 2016.)

Supplemental Information

Controlling Versus Enabling – Online Appendix
.

Related Work