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Organizational Prospects, Influence Costs, and Ownership Changes

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  • Margaret Meyer
  • Paul Milgrom
  • John Roberts

Abstract

We augment efficiency‐based theories of ownership by including influence costs. Our principal conclusion is that the prospect of organizational decline and layoffs creates additional influence costs in multiunit organizations that would be absent if there was no prospect of layoffs and would be lessened or eliminated in focused organizations. This helps explain the tendency of firms to divest poorly performing units, as well as the pattern of sales of such units to firms already in businesses related to that of the divested unit.

Suggested Citation

  • Margaret Meyer & Paul Milgrom & John Roberts, 1992. "Organizational Prospects, Influence Costs, and Ownership Changes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 9-35, March.
  • Handle: RePEc:bla:jemstr:v:1:y:1992:i:1:p:9-35
    DOI: 10.1111/j.1430-9134.1992.00009.x
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    File URL: https://doi.org/10.1111/j.1430-9134.1992.00009.x
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    References listed on IDEAS

    as
    1. Milgrom, Paul R, 1988. "Employment Contracts, Influence Activities, and Efficient Organization Design," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 42-60, February.
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