Residual claimant

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.[1] 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, information economics and corporate finance.[2] Its use can be traced back to the late 19th century and Francis Amasa Walker's 'residual claimant theory',[3] 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.[4]

Residual claimancy is generally required in order for there to be moral hazard, which is a problem typical of information asymmetry. This is specifically the case for the principal–agent problem.[5][6]

References
  1. Fama, E.F., Jensen, M.C. (1983). Separation of Ownership and Control. Journal of Law and Economics, 26(2), p. 302.
  2. A search for "residual claimant" on Google Scholar in January 2015 yielded approximately 8,430 results.
  3. Walker, F.A. (1883). Political Economy. American Science Series (Vol. 5): New York & London.
  4. Patten, S.N. (1889). President Walker's Theory of Distribution. The Quarterly Journal of Economics, 4(1), pp. 34-49; Bonar, J. (1891). The Residual Theory of Distribution. The Quarterly Journal of Economics, 6(1), pp. 105-107; Walker, F.A. (1891). The Doctrine of Rent, and the Residual Claimant Theory of Wages. The Quarterly Journal of Economics, 5(4), pp. 417-437; and Hollander, J.H. (1903). The Residual Claimant Theory of Distribution. The Quarterly Journal of Economics, 17(2), pp. 261-279.
  5. Bowles, Samuel (2004) Microeconomics: Behavior, Institutions and Evolution, Russell Sage Foundation, New York
  6. Samuel Bowles and Herbert Gintis, Mutual Monitoring in Teams: The Effects of Residual Claimancy and Reciprocity.


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