Inside vs Outside Ownership: A Political Theory of the Firm
AbstractIf 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 are organized as partnerships and others as stock corporations.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 344.
Length: 18 pages
Date of creation: 11 Nov 1999
Date of revision:
Publication status: Published in RAND Journal of Economics, 2001, pages 527-541.
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More information through EDIRC
Outside ownership; rent-seeking; conflict; property rights; theory of the firm.;
Other versions of this item:
- Müller, Holger M. & Wärneryd, Karl, 1999. "Inside vs Outside Ownership - A Political Theory of the Firm," Sonderforschungsbereich 504 Publications 99-82, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
- Karl Warneryd, 2000. "Inside vs. Outside Ownership: A Political Theory of the Firm," Econometric Society World Congress 2000 Contributed Papers 0985, Econometric Society.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-01-24 (All new papers)
- NEP-CFN-2000-01-24 (Corporate Finance)
- NEP-FIN-2000-01-24 (Finance)
- NEP-IND-2000-01-24 (Industrial Organization)
- NEP-MIC-2000-01-24 (Microeconomics)
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- Inderst, Roman & Muller, Holger M. & Warneryd, Karl, 2007.
"Distributional conflict in organizations,"
European Economic Review,
Elsevier, vol. 51(2), pages 385-402, February.
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- Skaperdas, Stergios, 2003. "Restraining the genuine homo economicus: why the economy cannot be divorced from its governance," Discussion Papers, Research Unit: Market Processes and Governance SP II 2003-03, Social Science Research Center Berlin (WZB).
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