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Inside vs. Outside Ownership: A Political Theory of the Firm

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  • Karl Warneryd

    (Stockholm School of Economics)

Abstract

If contracting within the firm is incomplete, managers will expend resources on trying to appropriate a share of the surplus that is generated. We show that outside ownership may alleviate the deadweight losses associated with such costly distributional conflict, even if all it does is add another level of conflict. In case managers have to be provided with incentives to make firm-specific investments, there is a tradeoff between minimizing rent-seeking costs and maximizing output. This suggests, among other things, an explanation of why some firms areorganized as partnerships and others as stock corporations.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0985.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0985

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Cited by:
  1. Kolesnik, Georgiy, 2010. "Математическая Модель Экономической Системы С Распределенными Правами Собственности
    [A Mathematical Model of the Economic
    ," MPRA Paper 47680, University Library of Munich, Germany, revised 25 May 2010.
  2. Inderst, Roman & Muller, Holger M. & Warneryd, Karl, 2007. "Distributional conflict in organizations," European Economic Review, Elsevier, Elsevier, vol. 51(2), pages 385-402, February.
  3. Stergios Skaperdas, 2003. "Restraining the Genuine Homo Economicus: Why the Economy Cannot Be Divorced from Its Governance," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 15(2), pages 135-162, 07.

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