When Should Control Be Shared?

Eva Meyersson Milgrom, Paul Milgrom and Ravi Singh
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Eva Meyersson Milgrom: Stanford Univeristy
Ravi Singh: Harvard University

No 06-037, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: A common pattern of control in firms is for management to retain a broad set of rights, while the remaining stakeholders’ contracts provide them with targeted veto rights over specific classes of decisions. We explain this pattern of control sharing as an efficient organizational response that balances the need to encourage management to account for stakeholders’ interests against the need to prevent self-interested stakeholders from blocking valuable proposals. Enforceable obligations of good faith and fair dealing play an essential role in facilitating undivided management control of many decisions. With these legal protections (but not without them), shared control is more likely when the parties are more symmetrically informed and hence better able to bargain to efficient decisions.

Keywords: Contract theory; control rights; ownership rights; shared control. (search for similar items in EconPapers)
JEL-codes: D23 K12 (search for similar items in EconPapers)
Date: 2006-08, Revised 2007-04
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: When Should Control Be Shared? (2023)
Working Paper: When Should Control Be Shared? (2007)
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