Both Market and Hierarchy: An Incentive-System Theory of Hybrid Governance Forms

Abstract

We create a taxonomy of hybrid governance forms and develop a formal theory that predicts when a given hybrid form will be efficient. Our model is unique in that we consider cross-task synergies in a multitask principal-agent model, where hybrid forms result as principals try to motivate cooperation among agents indirectly through incentives, ownership, and formal authority. We conclude with a discussion of other mechanisms that might also help us understand and predict hybrid governance forms.