The Role of Residual Claims and Self-Enforcement in Franchise Contracting / Francine Lafontaine, Emmanuel Raynaud.

Format:

Book

Author/Creator:

Lafontaine, Francine.

Contributor:

National Bureau of Economic Research.

Raynaud, Emmanuel.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8868.

NBER working paper series no. w8868

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

Much of the economic literature on franchising has been concerned with incentive issues and how these are managed in franchised contracts. Two main types of incentive mechanisms have been identified: residual claims and self enforcement. In this paper we describe these incentive mechanisms, and their use in franchise contracts. We argue that although these two types of mechanisms are usually thought of as alternative ways to align franchisee and franchisor incentives, they are in fact complementary in franchise contracts because they address different incentive problems. We explore what these incentive problems are, and then describe specifically how franchise contract terms and practices support each type of incentive mechanism. Finally, we discuss briefly, via two examples, how our analysis also applies to non-franchised systems with common marks or other reputation concerns.

Notes:

Print version record

March 2002.