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Inside vs Outside Ownership: A Political Theory of the Firm

Author

Listed:
  • Müller, Holger M.

    (Department of Economics)

  • Wärneryd, Karl

    (Dept. of Economics, Stockholm School of Economics)

Abstract

If contracting within the firm is incomplete, managers will expend resources on trying to appropriate a share of the surplus that is generated. We show that outside ownership may alleviate the deadweight losses associated with such costly distributional conflict, even if all it does is add another level of conflict. In case managers have to be provided with incentives to make firm-specific investments, there is a tradeoff between minimizing rent-seeking costs and maximizing output. This suggests, among other things, an explanation of why some firms are organized as partnerships and others as stock corporations.

Suggested Citation

  • Müller, Holger M. & Wärneryd, Karl, 1999. "Inside vs Outside Ownership: A Political Theory of the Firm," SSE/EFI Working Paper Series in Economics and Finance 344, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0344
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    Cited by:

    1. Kolesnik, Georgiy, 2010. "Математическая Модель Экономической Системы С Распределенными Правами Собственности [A Mathematical Model of the Economic System with Distributed Property Rights]," MPRA Paper 47680, University Library of Munich, Germany, revised 25 May 2010.
    2. Stergios Skaperdas, 2003. "Restraining the Genuine Homo Economicus: Why the Economy Cannot Be Divorced from Its Governance," Economics and Politics, Wiley Blackwell, vol. 15(2), pages 135-162, July.
    3. Inderst, Roman & Muller, Holger M. & Warneryd, Karl, 2007. "Distributional conflict in organizations," European Economic Review, Elsevier, vol. 51(2), pages 385-402, February.

    More about this item

    Keywords

    Outside ownership; rent-seeking; conflict; property rights; theory of the firm.;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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