Value, rent, and profit: A stakeholder resource‐based theory

Research Summary This article goes back to first principles to develop a stakeholder resource‐based theory grounded in a team production view of the firm. First, the firm is conceptualized as a governance structure to facilitate stakeholder cooperation in team production and innovation. Second, value creation, value appropriation, rent, and profit are defined in ways that explicitly acknowledge the collective and dynamic nature of value creation. The resulting framework is used to explain how economic profit and stakeholder payments emerge in the interplay of value creation and appropriation. One fundamental insight is that above normal returns to shareholders result from their (privileged) position in governance structures, as opposed to a competitive market logic. Implications for resource‐based theory and the notion of shareholder primacy are discussed. Managerial Summary How do firms generate profit? And what determines who appropriates this profit? These questions are answered by conceptualizing the firm as a coalition of stakeholders who provide resources to engage in team production and team innovation. Once the firm is seen in this way, two fundamental things become clear. First, profit is the result of how resource bundles are managed: profit depends on management's ability to assemble, develop, and deploy resource bundles that are unique in terms of novelty, complementarities, and/or scale. Second, appropriation of profit is the result of pure bargaining: who appropriates the profit generated by the firm is not determined by markets, but depends on the formal and informal governance rules that guide the bargaining over profit among the firm's stakeholders.