Working Paper: NBER ID: w16689
Authors: Howard Bodenhorn
Abstract: Economic teams, including the business partnership, are created to exploit gains from cooperation, but teams also fall prey to shirking and other opportunistic behaviors, which lead to their dissolution. If team production is partly financed with debt, the untimely dissolution of partnerships exposes creditors to default risks that they will price into debt contracts. This paper explores these two features of the nineteenth-century business partnership and finds: (1) partnerships were short-lived teams (two years or less, on average) and larger partnerships were shorter-lived yet; and (2) compared to proprietorship, partnerships paid higher interest rates on short-term debt, after controlling for loan size, maturity, and other observable features. Although there were potential gains from team production, potential opportunism raised the costs of partnerships.
Keywords: Partnerships; Credit Costs; Economic History
JEL Codes: K20; N21; N41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| partnerships (L14) | fragility (F12) |
| partnerships (L14) | higher credit costs (G21) |
| partnership status (L14) | credit costs (G21) |
| partnership size (L25) | longevity (C41) |