Managing Agency Problems in Early Shareholder Capitalism: an Exploration of Liverpool Shipping in the 18th Century*

We exploit a historical setting that offers an unusually clean test of the relationship between asset ownership and management incentives: captain-ownership of vessels engaged in transatlantic shipping during the 18th century. Although contingent compensation aligned incentives between captains and shipowners regarding most events, there existed one hazard that could not easily be managed by contractual incentives: the threat of capture by privateering vessels of an enemy nation. We exploit variation over time and across routes to explore the relationship between the capture threat and equity ownership. We find that vessels were significantly more likely to have a captain-owner when they undertook wartime voyages on routes that were particularly susceptible to encounters with enemy privateers. We also find, after accounting for endogeneity, that vessels with captain-owners were less likely to be captured than those with non-owner captains. JEL codes: D23, J33, L14, L23, L91 * We are deeply indebted to historians Nick Radburn and especially Stephen Behrendt for extensive discussions that have helped us understand eighteenth-century transatlantic trade, particularly the Liverpool-based slave trade. Tasfia Chowdhury, Mandy Epprecht, and Florenta Teodoridis provided able research assistance. We have also benefited from comments on earlier drafts by Pierre Azoulay, Ken Corts, Avi Goldfarb, Mara Lederman, Michael Ryall, and Scott Stern, as well as seminar audiences at Columbia University, Erasmus University Rotterdam, Massachusetts Institute of Technology, New York University, Ohio State University, Université de Paris, University of Michigan, and the University of Toronto.