Enterprise Form: Theory and History

Summary:  View help for Summary A considerable theoretical and empirical literature studies the corporation’s enterprise choices, most prominently capital structure. Economists have paid less attention to other enterprise forms such as partnerships, which typically operate under different legal constraints and appeal to smaller enterprises. Yet partnerships were the dominant business organization for the period in which wealthy countries first experienced long-run economic growth, and they remain quantitatively significant in some important economies today. After reviewing the growing empirical literature on this subject, we use a series of simple models to study several aspects of the partnership’s choice of capital structure and how this relates to a firm’s choice of enterprise form. Common features of partnerships reflect the difficulty of raising capital for ventures whose prospects are hard to judge. These results highlight the need for several specific avenues for future research.

Subject Terms:  View help for Subject Terms economic history; law and economics