Wie sollte die Managementvergütung (nicht) reguliert werden? – Ordnungspolitische Überlegungen zur Haftungsbeschränkung von und in Organisationen / How Managerial Compensation Should (not) be Regulated - Analyzing Limited Liability of Organizations and Within Organizations

Pies Ingo and Sass Peter

ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, 2011, vol. 62, issue 1, 231-268

Abstract: Walter Eucken strongly rejected the institution of limited liability. From his point of view, only unrestricted full liability was in conformity with the market order. This perspective misses important insights, as is shown with recourse to the modern microeconomics of risk allocation: Firstly, one can realize welfare gains by providing organizations with the status of limited liability. Second, one can realize further welfare gains within organizations by means of incentive contracts to solve principal-agent problems between equity holders and managers, e.g. by convex payment schemes that provide a kind of limited liability for managers. Both aspects are of vital importance for entrepreneurial innovations and thus for the dynamism of market economies. The main proposition is that limited liability within organizations should not be regulated by intervention, but by a second-order politics of institutional design. The article concludes with comments regarding the relationship between the politics and the ethics of institutional order

Date: 2011
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DOI: 10.1515/ordo-2011-0111

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