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

  • Patrick Bolton
  • Chenggang Xu

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.

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Paper provided by Center for International Development at Harvard University in its series CID Working Papers with number 20.

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Date of creation: Jul 1999
Date of revision:
Handle: RePEc:wop:cidhav:20
Contact details of provider: Postal: Center for International Development at Harvard University (CID). 79 John F. Kennedy Street, Cambridge, MA 02138.
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