Collective Choice and Control Rights in Firms

Gregory K. Dow and Gilbert L. Skillman

Journal of Public Economic Theory, 2007, vol. 9, issue 1, pages 107-125

Abstract: Recent writers have asserted that firms controlled by workers are rare because workers have diverse preferences over firm policies, while investors all support wealth maximization. However, the source of the asymmetry between capital and labor remains unclear. We resolve this puzzle by arguing that because financial capital is exceptionally mobile, capital markets induce unanimity. The lower mobility of human capital implies that labor markets are monopolistically competitive and hence that unanimity cannot be expected in labor-managed firms. Moreover, such firms are vulnerable to takeover by investors, while capital-managed firms are substantially less vulnerable to takeover by workers. Copyright 2007 Blackwell Publishing, Inc..

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Related works:
Working Paper: Collective Choice and Control Rights in Firms (1998)
Working Paper: Collective Choice and Control Rights in Firms (2005)
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