Managing Agency Problems in Early Shareholder Capitalism: an Exploration of Liverpool Shipping, 1743-1784

Abstract: We explore agency issues in Liverpool shipbuilding, 1743-1784. The typical ship had 2-12 owners, each contributing capital towards construction and owning a share of the ship. The construction/operation of a ship entailed two potential sources of agency problems. Owners rarely observed construction of a ship, and lacked knowledge to gauge its quality. And, a ship’s operation took it far from the oversight of these owners. When a ship sank or was captured, it was rarely clear whether the culprit was shoddy construction, poor captaincy, or unavoidable hazards. And while a captain would be primarily concerned with his life and subject to classic shirking incentives, owners were also (primarily?) concerned with the freight and ship. We explore this by exploiting a unique database of Liverpool ships. For each ship we observe date of construction; identity of owners; occupation of most owners; sailing history of most ships; and name of the captain for most trips. We identify which ships include captain and/or shipbuilder as owner, thus identifying cases where a ship provides key agents with residual claimancy. We measure a ship’s performance – how many trips before sinking or capture – to test whether ships with captain or shipbuilder as owner perform differently from ships without such ownership. Finally, a large minority of owners are “Gentlemen”—people of high class. We test whether high-status owners are afflicted differently than low-status owners by agency problems