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Allocating Control Over Firms: Stock Markets Versus Membership Markets

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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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File URL: http://www.sfu.ca/econ-research/RePEc/sfu/sfudps/dp00-03.pdf
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Bibliographic Info

Paper provided by Department of Economics, Simon Fraser University in its series Discussion Papers with number dp00-03.

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Length: 51 pages
Date of creation: 2000
Date of revision: Feb 2000
Handle: RePEc:sfu:sfudps:dp00-03

Note: An earlier draft was presented at the NBER Conference on "Shared Capitalism" in Washington, D.C. on May 22-23, 1998
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Postal: Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
Phone: (778)782-3508
Fax: (778)782-5944
Web page: http://www.sfu.ca/economics.html
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Postal: Working Paper Coordinator, Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
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Web: http://www.sfu.ca/economics/research/publications.html

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References

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Cited by:
  1. Hueth, Brent & Marcoul, Philippe, 2007. "The Cooperative Firm as Monitored Credit," Staff Paper Series 508, University of Wisconsin, Agricultural and Applied Economics.
  2. 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 basados en Monografías (students working papers) 12-14, Instituto de Economía - IECON.
  3. Hueth, Brent & Marcoul, Philippe & Ginder, Roger G., 2005. "Cooperative Formation And Financial Contracting In Agricultural Markets," 2005 Annual meeting, July 24-27, Providence, RI 19324, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. 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 basados en Monografías (students working papers) 09-02, Instituto de Economía - IECON.
  5. Burdín, Gabriel, 2013. "Are Worker-Managed Firms Really More Likely to Fail?," IZA Discussion Papers 7412, Institute for the Study of Labor (IZA).
  6. 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.
  7. Gregory K. Dow, 2000. "The Ultimate Control Group," Working Papers dp00-16, CRABE, Department of Economics, Simon Fraser University, revised Aug 2000.
  8. 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.

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