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Ownership and Managerial Competition: Employee, Customer, and Outside Ownership

Author

Listed:
  • Patrick Bolton
  • Chenggang Xu

Abstract

This paper centers around the question of ownership of firms and managerial competition and how these affect managers and employees' incentives to invest in human capital. We argue that employees' incentives in human capital investment are affected by both ownership and competition since both ownership structure and competition provide bargaining chips to employees. Ownership provides protections which may improve or dull employees' incentives for human capital investment. When there is fierce market competition and no lock-in the allocation of ownership does not play a role (as one might expect), provided that human and physical assets are sufficiently complementary. If asset complementarity is low, ownership matters even in the absence of lock-in. In general, the most efficient ownership arrangement is that which maximizes managerial competition inside the firm.

Suggested Citation

  • Patrick Bolton & Chenggang Xu, 1999. "Ownership and Managerial Competition: Employee, Customer, and Outside Ownership," CID Working Papers 20, Center for International Development at Harvard University.
  • Handle: RePEc:wop:cidhav:20
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    File URL: http://www.cid.harvard.edu/cidwp/pdf/020.pdf
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    Cited by:

    1. David Kelsey & Frank Milne, 2008. "Imperfect Competition and Corporate Governance," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(6), pages 1115-1141, December.

    More about this item

    Keywords

    ownership structure; property rights theory; competition; managerial labor market; privatization;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D49 - Microeconomics - - Market Structure, Pricing, and Design - - - Other
    • L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • P50 - Economic Systems - - Comparative Economic Systems - - - General

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