Implications for Including Shared Strategic Control in Multi-party Relationship Models

Contextual uncertainty and firm heterogeneity produce the potential for benefits from multi-party relationships, as well as the potential for inefficiencies in such relationships. We introduce the issue of shared control as a factor in the proper modeling of many multi-party relationships, such as that between a venture capitalist and entrepreneur. We find that adding this degree of freedom to the standard multi-party models (such as the principal-agent model) generates direct and indirect effects on the results. Under the most common circumstances, we predict that more potential for inefficiencies (e.g., pooling) will occur when parties share strategic control.