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Collective Choice and Control Rights in Firms

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  • GREGORY K. DOW
  • GILBERT L. SKILLMAN

Abstract

Recent writers have asserted that firms controlled by workers are rare because workers have diverse preferences over firm policies, while investors all support wealth maximization. However, the source of the asymmetry between capital and labor remains unclear. We resolve this puzzle by arguing that because financial capital is exceptionally mobile, capital markets induce unanimity. The lower mobility of human capital implies that labor markets are monopolistically competitive and hence that unanimity cannot be expected in labor-managed firms. Moreover, such firms are vulnerable to takeover by investors, while capital-managed firms are substantially less vulnerable to takeover by workers. Copyright 2007 Blackwell Publishing, Inc..

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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 9 (2007)
Issue (Month): 1 (02)
Pages: 107-125

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Handle: RePEc:bla:jpbect:v:9:y:2007:i:1:p:107-125

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References

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  1. Chris Doucouliagos, 1995. "Worker participation and productivity in labor-managed and participatory capitalist firms: A meta-analysis," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 49(1), pages 58-77, October.
  2. Makowski, Louis, 1983. "Competitive Stock Markets," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 305-30, April.
  3. Dow,Gregory K., 2003. "Governing the Firm," Cambridge Books, Cambridge University Press, number 9780521522212, April.
  4. Dow, Gregory K., 1986. "Control rights, competitive markets, and the labor management debate," Journal of Comparative Economics, Elsevier, vol. 10(1), pages 48-61, March.
  5. Makowski, Louis & Pepall, Lynne, 1985. " Easy Proofs of Unanimity and Optimality without Spanning: A Pedagogical Note," Journal of Finance, American Finance Association, vol. 40(4), pages 1245-50, September.
  6. Hart, Oliver D, 1979. "On Shareholder Unanimity in Large Stock Market Economies," Econometrica, Econometric Society, vol. 47(5), pages 1057-83, September.
  7. Kramer, Gerald H, 1973. "On a Class of Equilibrium Conditions for Majority Rule," Econometrica, Econometric Society, vol. 41(2), pages 285-97, March.
  8. Sadanand, Asha B & Williamson, John M, 1991. "Equilibrium in a Stock Market Economy with Shareholder Voting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(1), pages 1-35, February.
  9. McKelvey, Richard D, 1979. "General Conditions for Global Intransitivities in Formal Voting Models," Econometrica, Econometric Society, vol. 47(5), pages 1085-1112, September.
  10. Michael Magill & Martine Quinzii, 2002. "Theory of Incomplete Markets, Volume 1," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262632543, December.
  11. Dreze, Jacques H & Hagen, Kare P, 1978. "Choice of Product Quality: Equilibrium and Efficiency," Econometrica, Econometric Society, vol. 46(3), pages 493-513, May.
  12. Hart, Oliver D, 1979. "Monopolistic Competition in a Large Economy with Differentiated Commodities," Review of Economic Studies, Wiley Blackwell, vol. 46(1), pages 1-30, January.
  13. Gregory Dow, 1996. "Replicating Walrasian equilibria using markets for membership in labor-managed firms," Review of Economic Design, Springer, vol. 2(1), pages 147-162, December.
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Cited by:
  1. Natália Pimenta Monteiro & Geoff Stewart, 2013. "Scale, Scope and Survival: A Comparison of Cooperative and Capitalist Modes of Production," NIPE Working Papers 08/2013, NIPE - Universidade do Minho.
  2. Gregory K. Dow, 2000. "Allocating Control Over Firms: Stock Markets Versus Membership Markets," Discussion Papers dp00-03, Department of Economics, Simon Fraser University, revised Feb 2000.
  3. David Kelsey & Frank Milne, 2010. "Takeovers and cooperatives: governance and stability in non-corporate firms," Journal of Economics, Springer, vol. 99(3), pages 193-209, April.

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