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When Should Control Be Shared?

Author

Listed:
  • Eva M Meyersson Milgrom

    (Stanford Institute for Economic Policy Research (SIEPR) and Department of Sociology, Stanford University, Stanford, California 94305)

  • Paul Milgrom

    (Department of Economics, Stanford University, Stanford, California 94305)

  • Ravi Singh

    (Untapped Resources, Inc., Cambridge, Massachusetts 02139)

Abstract

A common pattern of control in firms is for management to retain a broad set of rights, whereas 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.

Suggested Citation

  • Eva M Meyersson Milgrom & Paul Milgrom & Ravi Singh, 2023. "When Should Control Be Shared?," Management Science, INFORMS, vol. 69(1), pages 404-418, January.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:1:p:404-418
    DOI: 10.1287/mnsc.2022.4356
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    References listed on IDEAS

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    Cited by:

    1. Broughman Brian, 2013. "Independent Directors and Shared Board Control in Venture Finance," Review of Law & Economics, De Gruyter, vol. 9(1), pages 41-72, June.

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    More about this item

    Keywords

    contract theory; control rights; ownership rights; shared control;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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