Incentives matter: shipping file

Research summary: We explore captain-ownership and vessel performance in eighteenth-century transatlantic shipping. Although contingent compensation often aligned incentives between captains and shipowners, one difficult-to-contract hazard was threat of capture during wartime. We exploit variation across time and routes to study the relationship between capture threat and captain-ownership. Vessels were more likely to have captain-owners when undertaking wartime voyages on routes susceptible to privateers. Captain-owned vessels were less readily captured than those with nonowner captains, but more likely to forgo voyage profits to preserve the vessel's safety. These results are consistent with multitask agency, where residual claims to asset value rather than control rights influence captain behavior. This article is among the first to empirically isolate mechanisms distinguishing among major strands of organizational economics regarding asset ownership and performance.

This is the abstract of a new paper in the Strategic Management Journal (Volume 38, Issue 4 April 2017 Pages 854–875) entitled Asset ownership and incentives in early shareholder capitalism: Liverpool shipping in the eighteenth century. The paper is by Brian S. Silverman and Paul Ingram.

The interesting points made by the paper include the obvious, incentives matter, captain-owned ships were less likely to be captured by privateers. The results also suggest that the incentives provided by income rights are weaker than those provided by asset ownership. Of course the protection of assets, the ship, made just be a way of protecting future profits at the expense of current profits.