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Allocating Control over Firms: Stock Markets versus Membership Markets

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  • Gregory Dow

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Abstract

The new institutional economics regards the firm as a set of incomplete contracts among input suppliers. The theory of the firm must therefore explain how decision-making powers are allocated. Two leading candidates for such control rights are capital suppliers and labor suppliers. Most large enterprises in developed economies award formal control to investors rather than workers. I suggest here that this asymmetry can be traced in part to differences between stock markets and membership markets as institutional mechanisms for allocating control over firms. The attractive theoretical properties of membership markets are examined, along with some factors that may account for their rarity in practice. These practical difficulties help explain the rarity of labor-managed firms themselves, along with various facts about their design, behavior, and distribution across industries.

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Bibliographic Info

Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 18 (2001)
Issue (Month): 2 (March)
Pages: 201-218

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Handle: RePEc:kap:revind:v:18:y:2001:i:2:p:201-218

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Web page: http://www.springerlink.com/link.asp?id=100336

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Keywords: Control rights; stock markets; labor-managed firms;

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Citations

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Cited by:
  1. Dow, Gregory K., 2002. "The ultimate control group," Journal of Economic Behavior & Organization, Elsevier, vol. 49(1), pages 39-49, September.
  2. Gabriel Burdin, 2014. "Are Worker-Managed Firms More Likely to Fail than Conventional Enterprises? Evidence from Uruguay," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 67(1), pages 202-238, January.
  3. Gabriel Burdín & Andrés Dean, 2009. "Las decisiones de empleo y salarios de cooperativas de trabajo y empresas capitalistas : evidencia para Uruguay en base a datos de panel," Documentos de Trabajo (working papers) 09-02, Instituto de Economía - IECON.
  4. Brent Hueth & Philippe Marcoul & Roger G. Ginder, 2004. "Cooperative Formation and Financial Contracting in Agricultural Markets," Center for Agricultural and Rural Development (CARD) Publications 03-wp349, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  5. Burdín, Gabriel & Dean, Andrés, 2009. "New evidence on wages and employment in worker cooperatives compared with capitalist firms," Journal of Comparative Economics, Elsevier, vol. 37(4), pages 517-533, December.
  6. Hueth, Brent & Marcoul, Philippe, 2007. "The Cooperative Firm as Monitored Credit," Staff Paper Series 508, University of Wisconsin, Agricultural and Applied Economics.
  7. Burdín, Gabriel, 2013. "Are Worker-Managed Firms Really More Likely to Fail?," IZA Discussion Papers 7412, Institute for the Study of Labor (IZA).
  8. Guillermo Alves & Gabriel Burdin & Paula Carrasco & Andrés Dean & Andrés Rius, 2012. "Empleo, remuneraciones e inversión en cooperativas de trabajadores y empresas convencionales: nueva evidencia para Uruguay," Documentos de Trabajo (working papers) 12-14, Instituto de Economía - IECON.

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