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Ownership and Managerial Competition: Employee, Customer, and Outside Ownership

Author

Listed:
  • Patrick Bolton
  • Chenggang Xu

Abstract

This paper centers around the question of ownership of firms and managerial competition and how these affect managers and employees' incentives to invest in human capital. We argue that employees' incentives in human capital investment are affected by both ownership and competition since both ownership structure and competition provide bargaining chips to employees. Ownership provides protections which may improve or dull employees' incentives for human capital investment. When there is fierce market competition and no lock-in the allocation of ownership does not play a role (as one might expect), provided that human and physical assets are sufficiently complementary. If asset complementarity is low, ownership matters even in the absence of lock-in. In general, the most efficient ownership arrangement is that which maximizes managerial competition inside the firm.

Suggested Citation

  • Patrick Bolton & Chenggang Xu, 1999. "Ownership and Managerial Competition: Employee, Customer, and Outside Ownership," CID Working Papers 20A, Center for International Development at Harvard University.
  • Handle: RePEc:cid:wpfacu:20a
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    File URL: https://www.hks.harvard.edu/sites/default/files/centers/cid/files/publications/faculty-working-papers/020.pdf
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    Citations

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    Cited by:

    1. David Kelsey & Frank Milne, 2008. "Imperfect Competition and Corporate Governance," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(6), pages 1115-1141, December.
    2. Roberts, John & Van den Steen, Eric, 2000. "Shareholder Interests, Human Capital Investment and Corporate Governance," Research Papers 1631, Stanford University, Graduate School of Business.
    3. David Kelsey & Frank Milne, 2006. "Externalities, monopoly and the objective function of the firm," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(3), pages 565-589, November.
    4. Becht, Marco & Bolton, Patrick & Roell, Ailsa, 2003. "Corporate governance and control," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 1, pages 1-109, Elsevier.
    5. Mauricio Garrón B. & Carlos Gustavo Machicado & Katherina Capra, 2003. "Privatization in Bolivia: The Impact on Firm Performance," Research Department Publications 3154, Inter-American Development Bank, Research Department.

    More about this item

    Keywords

    ownership structure; property rights theory; competition; managerial labor market; privatization;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D49 - Microeconomics - - Market Structure, Pricing, and Design - - - Other
    • L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • P50 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - General

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