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A Dynamic Property Rights Theory of the Firm


  • Daniel Friesner
  • Robert Rosenman


We present a dynamic property rights model of the firm with two types of non-pecuniary spending: one that is financed through capital markets which impacts future firm wealth, and one that does not. Consumption of the latter good is consistent with what has been found in previous models. Our theoretical model indicates that excess non-pecuniary spending may diverge or converge over time, depending on specific management goals and constraints, and regulatory factors. Using a panel of Washington State hospitals, we find evidence that non-pecuniary spending does fluctuate over time and that government policy variables, such as the level of Medicare and Medicaid reimbursement have a statistically significant impact on a firm's excess non-pecuniary spending.

Suggested Citation

  • Daniel Friesner & Robert Rosenman, 2002. "A Dynamic Property Rights Theory of the Firm," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(3), pages 311-333.
  • Handle: RePEc:taf:ijecbs:v:9:y:2002:i:3:p:311-333 DOI: 10.1080/1357151021000010373

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    References listed on IDEAS

    1. Boardman, Anthony E & Vining, Aidan R, 1989. "Ownership and Performance in Competitive Environments: A Comparison of the Performance of Private, Mixed, and State-Owned Enterprises," Journal of Law and Economics, University of Chicago Press, vol. 32(1), pages 1-33, April.
    2. Frech, H E, III, 1976. "The Property Rights Theory of the Firm: Empirical Results from a Natural Experiment," Journal of Political Economy, University of Chicago Press, vol. 84(1), pages 143-152, February.
    3. Clarkson, Kenneth W, 1972. "Some Implications of Property Rights in Hospital Management," Journal of Law and Economics, University of Chicago Press, vol. 15(2), pages 363-384, October.
    4. Wedig, Gerard J & Hassan, Mahmud & Sloan, Frank A, 1989. "Hospital Investment Decisions and the Cost of Capital," The Journal of Business, University of Chicago Press, vol. 62(4), pages 517-537, October.
    5. Mahmud Hassan & Gerard Wedig & Michael Morrisey, 2000. "Charity Care by Non-profit Hospitals: The Price of Tax-exempt Debt," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 7(1), pages 47-62.
    6. Jack Zwanziger & Glenn A. Melnick & Anil Bamezai, 2000. "Can cost shifting continue in a price competitive environment?," Health Economics, John Wiley & Sons, Ltd., vol. 9(3), pages 211-226.
    7. Daniel Friesner & Robert Rosenman, 2001. "The Property Rights Theory of the Firm and Mixed Competition: A Counter-Example in the US Health Care Industry," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 8(3), pages 437-450.
    8. Friedman, Bernard & Pauly, Mark, 1981. "Cost Functions for a Service Firm with Variable Quality and Stochastic Demand: The Case of Hospitals," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 620-624, November.
    9. Weisbrod, Burton A, 1983. "Nonprofit and Proprietary Sector Behavior: Wage Differentials among Lawyers," Journal of Labor Economics, University of Chicago Press, vol. 1(3), pages 246-263, July.
    10. Wedig, Gerard J & Hassan, Mahmud & Morrisey, Michael A, 1996. " Tax-Exempt Debt and the Capital Structure of Nonprofit Organizations: An Application to Hospitals," Journal of Finance, American Finance Association, vol. 51(4), pages 1247-1283, September.
    11. Richard G. Frank & David S. Salkever, 1994. "Nonprofit Organizations in the Health Sector," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 129-144, Fall.
    12. Dittmar, Amy K, 2000. "Why Do Firms Repurchase Stock?," The Journal of Business, University of Chicago Press, vol. 73(3), pages 331-355, July.
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    Cited by:

    1. Seungchul Lee & Robert Rosenman, 2013. "Reimbursement and Investment: Prospective Payment and For-Profit Hospitals’ Market Share," Journal of Industry, Competition and Trade, Springer, vol. 13(4), pages 503-518, December.
    2. Mulaj, Isa, 2006. "Redefining Property Rights with Specific Reference to Social Ownership in Successor States of Former Yugoslavia: Did it Matter for Economic Efficiency?," MPRA Paper 243, University Library of Munich, Germany.


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