ENTREPRENEUR OR MANAGER - WHO RUNS THE FIRM

The paper studies the choice facing the owner of a valuable project. S he can either ran it herself, or sell it to an outside investor and co ntinue to work as the manager, receiving a performance related salary. Which is better? In other words, should an agent carry out a project herself, or hire a principal? The main result we establish is that eit her can be preferred. The crucial difference lies in the relationship between the individual's effort and external economic conditions. The entrepreneur works harder when times are bad than when they are good, the manager does exactly the opposite.