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Sunk Costs Of Capital And The Form Of Enterprise: Investor‐Owned Firms And Worker‐Owned Firms

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  • Kazuhiko Mikami
  • Satoru Tanaka

Abstract

ABSTRACT**: This paper examines implications of sunk costs of capital for efficient forms of enterprise. It is assumed that firm owners and outside traders are asymmetrically informed of venture risks, and that there are sunk costs associated with investment in physical and human capital. We then make an efficiency comparison between investor‐owned and worker‐owned firms. We find that the firm is efficient when it is owned by the input supplier (the investor or worker) who incurs large sunk costs. This is because such an input supplier can credibly signal to the other input supplier that he in fact has a safe project. An empirical study based on the Japanese manufacturing industry seems to support the theoretical result.

Suggested Citation

  • Kazuhiko Mikami & Satoru Tanaka, 2010. "Sunk Costs Of Capital And The Form Of Enterprise: Investor‐Owned Firms And Worker‐Owned Firms," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 81(1), pages 77-104, March.
    • Handle: RePEc:bla:annpce:v:81:y:2010:i:1:p:77-104
    DOI: 10.1111/j.1467-8292.2009.00406.x
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    References listed on IDEAS

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    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Mikami, Kazuhiko, 2003. "Market power and the form of enterprise: capitalist firms, worker-owned firms and consumer cooperatives," Journal of Economic Behavior & Organization, Elsevier, vol. 52(4), pages 533-552, December.
    3. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
    4. Kazuhiko Mikami, 2007. "Asymmetric Information and the Form of Enterprise: Capitalist Firms and Consumer Cooperatives," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(2), pages 297-312, June.
    5. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    6. Manning, Alan, 1989. "An Asymmetric Information Approach to the Comparative Analysis of Participatory and Capitalist Firms," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 312-326, April.
    7. Ben-Ner, Avner & Jun, Byoung, 1996. "Employee Buyout in a Bargaining Game with Asymmetric Information," American Economic Review, American Economic Association, vol. 86(3), pages 502-523, June.
    8. Kazuhiko Mikami & Satoru Tanaka, 2008. "Food Processing Business and Agriculture Cooperatives in Japan: Market Power and Asymmetric Information," Asian Economic Journal, East Asian Economic Association, vol. 22(1), pages 83-107, March.
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    Cited by:

    1. Mikami, Kazuhiko, 2018. "Are cooperative firms a less competitive form of business? Production efficiency and financial viability of cooperative firms with tradable membership shares," Economic Systems, Elsevier, vol. 42(3), pages 487-502.
    2. Laura Abrardi & Luca Colombo & Pier Angelo Mori, 2016. "Customer Ownership And Quality Provision In Public Services Under Asymmetric Information," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1499-1518, July.

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