Inside vs. Outside Ownership: A Political Theory of the Firm

Karl Wärneryd

No 985, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: If contracting within the firm is incomplete, managers will expend resources on trying to appropriate a share of the surplus that is generated. We show that outside ownership may alleviate the deadweight losses associated with such costly distributional conflict, even if all it does is add another level of conflict. In case managers have to be provided with incentives to make firm-specific investments, there is a tradeoff between minimizing rent-seeking costs and maximizing output. This suggests, among other things, an explanation of why some firms areorganized as partnerships and others as stock corporations.

Date: 2000-08-01
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Related works:
Working Paper: Inside vs Outside Ownership: A Political Theory of the Firm (1999)
Working Paper: Inside vs. Outside Ownership: A Political Theory of the Firm (1999)
Working Paper: Inside vs Outside Ownership - A Political Theory of the Firm (1999)
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