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, which emerged primarily from scholars of the Chicago school of economics. Economic concepts are used to explain the effects of law ...
,
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 the area of finance that deals with the sources of funding, the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to all ...
. Its use can be traced back to the late 19th century and
Francis Amasa Walker
Francis Amasa Walker (July 2, 1840 – January 5, 1897) was an American economist, statistician, journalist, educator, academic administrator, and an officer in the Union Army.
Walker was born into a prominent Boston family, the son of the econo ...
'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
Simon Nelson Patten (May 1, 1852 – July 24, 1922) was an economist and the chair of the Wharton School of Business at the University of Pennsylvania. Patten was one of the first economists to posit a shift from an 'economics of scarcity' to ...
,
Jacob Hollander
Jacob Harry Hollander (1871–1940) was an American economist.
Biography
Hollander was born in Baltimore, Maryland. He graduated from Johns Hopkins University with a BA in 1891, and a PhD in 1894. He became associate professor of finance there. I ...
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 of that risk. For example, when a corporation is insured, it may take on higher risk ...
, which is a problem typical of
information asymmetry
In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other.
Information asymmetry creates an imbalance of power in transactions, which ...
. 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 gre ...
.
[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 c ...
, ''Mutual Monitoring in Teams: The Effects of Residual Claimancy and Reciprocity''.
References
Distribution of wealth
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