Why did the Dutch East India Co. outperform the British East India Co.? —A theoretical explanation based on the objective of the firm and limited liability—

Tetsuya Shinkai (), Takao Ohkawa, Makoto Okamura and Kozo Harimaya
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Makoto Okamura: Faculty of Economics, Hiroshima University and Ritsumeikan University

No 96, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: We examine the relationship between the objective of a monopolist and limited liability. We establish that the owners of a monopolistic firm are better off to choose profit maximization rather than sales maximization under both unlimited and limited liability. This is consistent with the fact that the Dutch East India Company, whose objective was profit maximization, was better off in the seventeenth century than the British East India Company, whose objective was sales maximization. We also show that a monopolist should choose to organize as a limited liability entity regardless of its objective.

Keywords: limited liability; firm objective; managerial incentives; monopoly (search for similar items in EconPapers)
JEL-codes: G32 L12 L13 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2012-12, Revised 2012-12
New Economics Papers: this item is included in nep-com and nep-his
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:96

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