The residual claimant refers to the economic agent who has the sole remaining claim on an organization's net cash flows, i.e. after the deduction of precedent agents' claims, and therefore also bears the residual risk. Residual risk is defined in this context as the risk associated with differences between the stochastic inflows of assets into the organization and precedent agents' claims on the organization's cash flows. Precedent agents' claims on an organization's cash flows can consist of e.g. employees' salaries, creditors' interest or the government's taxes.
The concept of the residual claimant has been the subject of as well as used in over 8,000 scholarly articles, notably in
law and economics
Law and economics, or economic analysis of law, is the application of microeconomic theory to the analysis of law. The field emerged in the United States during the early 1960s, primarily from the work of scholars from the Chicago school of econ ...
,
information economics
Information economics or the economics of information is the branch of microeconomics that studies how information and information systems affect an economy and economic decisions.
One application considers information embodied in certain types ...
and
corporate finance
Corporate finance is an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analy ...
. Its use can be traced back to the late 19th century and
Francis Amasa Walker's 'residual claimant theory', which argues that in the distribution of wealth among profits, rent, interest and wages, the laborer is the residual claimant and wages the variable residual share of wealth, thereby going against the established view of profits as the residual share and igniting a debate with
Simon Patten,
Jacob Hollander and
James Bonar.
Residual claimancy is generally required in order for there to be a
moral hazard
In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs associated with that risk, should things go wrong. For example, when a corporation i ...
, which is a problem typical of
information asymmetry
In contract theory, mechanism design, and economics, an information asymmetry is a situation where one party has more or better information than the other.
Information asymmetry creates an imbalance of power in transactions, which can sometimes c ...
. This is specifically the case for the
principal–agent problem
The principal–agent problem refers to the conflict in interests and priorities that arises when one person or entity (the " agent") takes actions on behalf of another person or entity (the " principal"). The problem worsens when there is a gr ...
.
[Samuel Bowles and ]Herbert Gintis
Herbert Gintis (February 11, 1940 – January 5, 2023) was an American economist, behavioral scientist, and educator known for his theoretical contributions to sociobiology, especially altruism, cooperation, epistemic game theory, gene-culture co ...
, ''Mutual Monitoring in Teams: The Effects of Residual Claimancy and Reciprocity''.
References
Distribution of wealth
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