Firm ownership and the macroeconomics of incentive leakages

Yunus Aksoy, Arup Daripa () and Issam Samiri

No 3033, Working Paper Series from European Central Bank

Abstract: Questions about market power have become salient in macroeconomics. We consider the role of institutional structures in addressing these within a dynamic general equilibrium framework. Standard models account for monopoly profits as a lump-sum transfer to the representative agent. We label this an "incentive leakage," and show this to be a general characteristic of firm-optimal arrangements. We show that shareholder-operated or worker-operated firms that eliminate leakage can generate within-firm incentives that effectively reduce monopoly distortion in equilibrium. When all firms operate similarly, an additional general equilibrium effect arises through internalization of an aggregate demand externality. We characterize steady-state welfare across structures, and show how zero-leakage institutions lead to improvements towards the Golden Rule benchmark. Overall, our paper takes the first step towards an analysis of the macroeconomics of institutions without incentive leakage. JEL Classification: E10, E22, E24, E25

Keywords: aggregate demand externality; Golden Rule; incentive leakage; monopolistic competition; monopoly gap; patience gap (search for similar items in EconPapers)
Date: 2025-02
New Economics Papers: this item is included in nep-cta and nep-dge
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Related works:
Working Paper: Firm Ownership and the Macroeconomics of Incentive Leakages (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253033

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