The organizational form of franchising has been shown to yield higher profits and faster growth through reducing agency costs. Why then does anyone not franchise? In this paper, I argue that the diffuse residual claims of the franchise system reduce overall system quality, and that this problem...

An agency relationship exists whenever one party (the principal) delegates authority to another (the agent). Because agents are assumed to be self-interested and to possess goals that diverge from the principal's goals, the principal must expend resources (called agency costs) to insure that...