Diskussionspapiere der DFG- Forschergruppe (Nr.: 3468269275): Heterogene Arbeit: Positive und Normative Aspekte der Qualifikationsstruktur der Arbeit

The O-Ring theory provides a framework to analyse the emergence of firms organized as partnerships. The ownermanagers of such entrepreneurial firms can benefit from ability matching within their production teams. However, they must also bear the project risk. Risk-aversion then induces a second-best solution. At the same time, integrated firms managed on behalf of risk-neutral residual-claimants face information and/or enforcement problems. Hence, they cannot organize ability-matched teams. It is shown that there exists an equilibrium such that groups of individuals sharing a superior ability level will found entrepreneurial firms. Low-quality individuals will be employed by managed firms which hire randomly. The paper constitutes a significantly revised version of the study formerly entitled “The Emergence of a New Economy: An O-Ring Approach”, Department of Economics, University of Konstanz, Discussion Paper Series I – 314. JEL Classification : D2, L2, M2