Firm Ownership and the Macroeconomics of Incentive Leakages

Issam Samiri (), Yunus Aksoy and Arup Daripa ()

No 563, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

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 model. In standard models, monopoly profits are accounted for as a lump-sum payment 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 structures such as shareholderoperated or worker-operated firms that eliminate the leakage can generate within-firm incentives that effectively reduce the monopoly distortion in equilibrium. When all firms operate similarly, an additional general equilibrium effect arises through the internalization of an aggregate demand externality. We characterize steady-state welfare across structures, and show how zero-leakage institutions lead to aggregate improvements towards the steady-state Golden Rule benchmark. Overall, our paper takes the first step towards an analysis of the macroeconomics of institutions without incentive leakage.

Keywords: Monopolistic competition; incentive leakage; ownership structure; internal competition; aggregate demand externality; steady-state welfare; Golden Rule; patience gap; monopoly gap (search for similar items in EconPapers)
JEL-codes: E10 E22 E24 E25 (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-dge
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Related works:
Working Paper: Firm ownership and the macroeconomics of incentive leakages (2025)
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