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Disagreement and the Allocation of Control

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  • Eric Van den Steen

Abstract

This article studies the allocation of control when there is disagreement--in the sense of differing priors--about the right course of action. People then value control rights since they believe that their decisions are better than those of others. More disagreement (due to, e.g., fundamental uncertainty) increases the value that players attach to control. The article shows that all income and control of a project should then be concentrated in one hand: income rights should go more to people with more control since such people value income higher (because they have a higher opinion of the decisions made); control rights should go more to people with more income since they care more (and believe that they make better decisions). Different projects may be optimally "owned" by different people. Furthermore--with residual income exogenously allocated--complementary decisions should be more co-located, whereas substitute decisions should be more distributed. Confident people with a lot at stake should--in a wide range of settings--get more control. (JEL D7, D8, L2, M1) The Author 2008. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Eric Van den Steen, 2010. "Disagreement and the Allocation of Control," Journal of Law, Economics, and Organization, Oxford University Press, vol. 26(2), pages 385-426.
  • Handle: RePEc:oup:jleorg:v:26:y::i:2:p:385-426
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    File URL: http://hdl.handle.net/10.1093/jleo/ewn020
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    References listed on IDEAS

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    Cited by:

    1. Di Maggio, Marco, 2009. "Sweet Talk: A Theory of Persuasion," MPRA Paper 18697, University Library of Munich, Germany.
    2. Julie Wulf & Harbir Singh, 2011. "How Do Acquirers Retain Successful Target CEOs? The Role of Governance," Management Science, INFORMS, vol. 57(12), pages 2101-2114, December.
    3. Dicks, David & Fulghieri, Paolo, 2015. "Ambiguity, Disagreement, and Allocation of Control in Firms," CEPR Discussion Papers 10400, C.E.P.R. Discussion Papers.
    4. Millner, Antony & Ollivier, Hélène & Simon, Leo, 2014. "Policy experimentation, political competition, and heterogeneous beliefs," Journal of Public Economics, Elsevier, vol. 120(C), pages 84-96.
    5. Becker, Bo & Ivashina, Victoria, 2016. "Covenant-Light Contracts And Creditor Coordination," Working Paper Series 325, Sveriges Riksbank (Central Bank of Sweden).
    6. Klepper, Steven & Thompson, Peter, 2010. "Disagreements and intra-industry spinoffs," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 526-538, September.
    7. Josef Windsperger, 2013. "The governance of franchising networks," Chapters,in: Handbook of Economic Organization, chapter 27 Edward Elgar Publishing.
    8. repec:eee:jcecon:v:45:y:2017:i:4:p:685-711 is not listed on IDEAS
    9. repec:eee:jeborg:v:137:y:2017:i:c:p:54-71 is not listed on IDEAS

    More about this item

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration

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