Franchise contracts are identified as a hybrid form of economic organization. Motives for the dominance of franchise arrangements are identified by examining the theoretical literature on franchising and related literatures on the theory of the firm, firm growth, managerial and employee selection, a nd brand-name capital. Empirical tests are performed on the incidence of franchise contracts across states for three industries in which f ranchising is prominent and data are readily available. The results s uggest that both principal-agent incentives and informational incenti ves favor the use of franchise arrangements. Copyright 1988 by the University of Chicago.

An Empirical Look at Franchising as an Organizational Form

Known for his seminal work in efficiency-wage theory, Andrew Weiss surveys recent research in the field and presents new results. He shows how wage schedules affect the kinds of workers a firm employs and how well those workers perform on the job. Using straightforward examples, he demonstrates how efficiency-wage theory can explain labor market outcomes and guide government policy. There is a separate section of applications to less developed countries. "Efficiency-wage models represent one of the most important developments in economic theory of recent years. They have, at last, provided integrated explanations both of macroeconomic phenomena, such as unemployment and wage rigidity, and microeconomic phenomena, such as wage dispersion. Weiss--one of the pioneers of efficiency-wage theory--provides here a masterful survey, a lucid and systematic and yet critical account of this rapidly developing branch of economics. This book should be required reading in all courses in macroeconomics."--Joseph Stiglitz, Stanford University "Efficiency Wages should be on the bookshelf of all labor and macroeconomists."--Lawrence H. Summers, Harvard University "A splendid monograph ... most readable... I will put it on my reading list."--Partha Dasgupta, Stanford University Originally published in 1991. The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

Efficiency Wages: Models of Unemployment, Layoffs, and Wage Dispersion

This paper provides an explanation of franchising's fee structure, drawing on principal agency and labor economics theory. The predictive framework includes constructs such as channel control, franchisor services, franchisee risk and the franchisor's capital constraints. The empirical investigation of a representative sample of franchise chains indicates that channel control is the major factor influencing the payment design. The results are used to test managerial implications about the use of an optimal fee structure in the growth of chains.

The use of initial fees and royalties in business‐format franchising

We examine Henry Ford's introduction of the five-dollar day in 1914 in an effort to evaluate the relevance of efficiency wage theories of wage and employment determination. We conclude that the Ford experience strongly supports the relevance of these theories. Ford's decision to increase wages dramatically is most plausibly the consequence of labor problems of the kind efficiency wage theorists stress. The structure of the five-dollar day program is consistent with the predictions of efficiency wage theories. There is vivid evidence that the introduction of the five-dollar day resulted in substantial queues for Ford jobs. Significant increases in Ford productivity and profits accompanied the new regime.

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Did Henry Ford Pay Efficiency Wages

The simplest economic theories of crime predict that profit-maximizing firms should follow strategies of minimal monitoring with large penalties for employee crime. We investigate possible reasons why firms actually spend considerable resources trying to detect employee malfeasance. We find that the most plausible explanations for firms' large outlays on monitoring of employees-legal restrictions on penalty clauses in contracts and the adverse impact of harsh punishment schemes on worker morale-are also consistent with the payment of premium (rent-generating) wages by cost-minimizing firms.

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Employee Crime and the Monitoring Puzzle

latitude with respect to the effort they supply, and monitoring of effort and output is costly. In this paper we examine the agency problem that arises in these circumstances. The agent (employee) is assumed to maximize expected utility, which depends on wages and effort (a "bad"). We assume that output is a deterministic function of effort, that either effort or output can be accurately monitored, and that monitoring is costly. The firm's problem is to select a level of monitoring and a compensation package that will minimize the cost of obtaining a desired level of effort, given the cost of monitoring, the agent's preferences and the agent's opportunity cost of accepting employment with the firm (his labour supply constraint). The firm chooses a compensation scheme from the set in which compensation is contingent on effort if the agent is monitored, and is equal to a standard

William D. White

Papers

The Economy of High Wages: an Agency Problem