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Monitoring the Monitor: Does Ownership Matter?

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  • Yijiang Wang

    (University of Minnesota)

Abstract

One of the most intriguing and influential questions in organizational theory is ¡°who monitors the monitor?¡± A theory of ownership is proposed by Alchian and Demsetz in answer to this question. In this paper, a model of successive monitoring is constructed to show that, when it is feasible for a capitalist owner to overcome free riding in a team through monitoring, it is equally feasible for the workers as owners to do so with an outcome-based incentive for the monitor at the top. Thus the answer to the question ¡±who monitors the monitor¡± has no specific implications for ownership, capitalist or labor. While ownership is neutral in affecting the feasibility of monitoring, it is generally not so in affecting income distribution and other design variables in the organization.

Suggested Citation

  • Yijiang Wang, 2003. "Monitoring the Monitor: Does Ownership Matter?," Annals of Economics and Finance, Society for AEF, vol. 4(1), pages 137-149, May.
    • Handle: RePEc:cuf:journl:y:2003:v:4:i:1:p:137-149
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    References listed on IDEAS

    as
    1. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75(2), pages 123-123.
    2. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    3. Calvo, Guillermo A & Wellisz, Stanislaw, 1978. "Supervision, Loss of Control, and the Optimum Size of the Firm," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 943-952, October.
    4. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    5. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    6. Bonin John P. & Putterman Louis, 1993. "Incentives and Monitoring in Cooperatives with Labor-Proportionate Sharing Schemes," Journal of Comparative Economics, Elsevier, vol. 17(3), pages 663-686, September.
    7. Bonin, John P & Jones, Derek C & Putterman, Louis, 1993. "Theoretical and Empirical Studies of Producer Cooperatives: Will Ever the Twain Meet?," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1290-1320, September.
    8. Ben-ner, Avner, 1988. "The life cycle of worker-owned firms in market economies : A theoretical analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 10(3), pages 287-313, October.
    9. Ben Craig & John Pencavel, 1995. "Participation and Productiviy: A Comparison of Worker Cooperatives and Conventional Firms in the Plywood Industry," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995 Micr), pages 121-174.
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    More about this item

    Keywords

    Monitor; Ownership;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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