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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.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 4 (2003)
Issue (Month): 1 (May)
Pages: 137-149

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Handle: RePEc:cuf:journl:y:2003:v:4:i:1:p:137-149

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Keywords: Monitor; Ownership;

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  1. 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, University of Chicago Press, vol. 86(5), pages 943-52, October.
  2. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Ben-ner, Avner, 1988. "The life cycle of worker-owned firms in market economies : A theoretical analysis," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 10(3), pages 287-313, October.
  4. 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, University of Chicago Press, vol. 21(2), pages 297-326, October.
  5. 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.
  6. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 123.
  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, American Economic Association, vol. 31(3), pages 1290-320, September.
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