The Division of Ownership in New Ventures

Abstract

The current study investigates a tripartite incentive contract between an innovator supplying an intellectual asset, a professional assigned to productive tasks, and a consulting firm specializing in matching ideas and professional skills. A rather simple pure tripartite partnership implements the consultant´s expected profit maximum and maximizes the project`s expected surplus. The liquidity-constrained professional is compensated by receiving a share of one half in the new venture. The consultant´s and the innovator´s shares reflect the relative value of search. However, the consultant´s optimal search effort to find an appropriate production partner is inefficiently low.