Equity as Tribute: The Market for Passive State Equity

Joshua Gans

No 35518, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Firms have begun granting passive equity stakes to the government that regulates them. The received reading is “skin in the game:” ownership moves profits onto the treasury's balance sheet, so policy softens. We show that once the price of the stake and the firm's policy exposure are determined in equilibrium, the owners' consent reveals nothing about whether they benefit. Sellers capitalise the induced policy improvement into the price, so an anticipated purchase can only occur at a discount; a government with bargaining power pays zero for a sufficiently exposed firm; and a government that can first raise exposure manufactures precisely enough of it to drive the negotiated price to its legal floor. Equity becomes tribute. Prohibition is nonetheless dominated: at fixed exposure, a passive stake corrects the political underweighting of shareholders. Welfare is maximised by priced permission—an ownership cap at the fixed-exposure optimum and a per-unit price floor equal to baseline no-stake value. The floor, unlike the cap, requires no knowledge of the government's political weights.

JEL-codes: D72 G38 L32 L51 P18 (search for similar items in EconPapers)
Date: 2026-07
Note: PR
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