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Allocating Control Over Firms: Stock Markets Versus Membership Markets

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Abstract

The new institutional economics regards the firm as a set of incomplete contracts among input suppliers. The theory of the firm must therefore explain how decision-making powers are allocated. Two leading candidates for such control rights are capital suppliers and labor suppliers. Most large enterprises in developed economies award formal control to investors rather than workers. I suggest here that this asymmetry can be traced in part to differences between stock markets and membership markets as institutional mechanisms for allocating control over firms. The attractive theoretical properties of membership markets are examined, along with some factors that may account for their rarity in practice. These practical difficulties help explain the rarity of labor-managed firms themselves, along with various facts about their design, behavior, and distribution across industries.

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  • Gregory K. Dow, 2000. "Allocating Control Over Firms: Stock Markets Versus Membership Markets," Discussion Papers dp00-03, Department of Economics, Simon Fraser University, revised Feb 2000.
    • Handle: RePEc:sfu:sfudps:dp00-03
    Note: An earlier draft was presented at the NBER Conference on "Shared Capitalism" in Washington, D.C. on May 22-23, 1998
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    2. Gabriel Burdí­n & Andrés Dean, 2009. "Las decisiones de empleo y salarios de cooperativas de trabajo y empresas capitalistas : evidencia para Uruguay en base a datos de panel," Documentos de Trabajo (working papers) 09-02, Instituto de Economía - IECON.
    3. Burdín, Gabriel & Dean, Andrés, 2009. "New evidence on wages and employment in worker cooperatives compared with capitalist firms," Journal of Comparative Economics, Elsevier, vol. 37(4), pages 517-533, December.
    4. Josefina Fernandez-Guadaño & Manuel Lopez-Millan & Jesús Sarria-Pedroza, 2020. "Cooperative Entrepreneurship Model for Sustainable Development," Sustainability, MDPI, vol. 12(13), pages 1-11, July.
    5. Zuray Melgarejo & Katrin Simon & Francisco J. Arcelus, 2010. "Differences In Financial Performance Amongst Spanish Smes According To Their Capital‐Ownership Structure: A Descriptive Analysis," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 81(1), pages 105-129, March.
    6. Dow, Gregory K., 2002. "The ultimate control group," Journal of Economic Behavior & Organization, Elsevier, vol. 49(1), pages 39-49, September.
    7. Burdin, Gabriel, 2013. "Are Worker-Managed Firms Really More Likely to Fail?," IZA Discussion Papers 7412, Institute of Labor Economics (IZA).
    8. Gabriel Burdín, 2014. "Are Worker-Managed Firms More Likely to Fail Than Conventional Enterprises? Evidence from Uruguay," ILR Review, Cornell University, ILR School, vol. 67(1), pages 202-238, January.
    9. Brent Hueth & Philippe Marcoul & Roger G. Ginder, 2004. "Cooperative Formation and Financial Contracting in Agricultural Markets," Center for Agricultural and Rural Development (CARD) Publications 03-wp349, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    10. Loek Groot & Daan van der Linde, 2017. "The Labor-Managed Firm: Permanent or Start-Up Subsidies?," Journal of Economic Issues, Taylor & Francis Journals, vol. 51(4), pages 1074-1093, October.
    11. Guillermo Alves & Gabriel Burdin & Paula Carrasco & Andrés Dean & Andrés Rius, 2012. "Empleo, remuneraciones e inversión en cooperativas de trabajadores y empresas convencionales: nueva evidencia para Uruguay," Documentos de Trabajo (working papers) 12-14, Instituto de Economía - IECON.
    12. Marta Orviska, 2018. "A Different Perspective on Current Problems: Comment on “Proposals for a Democracy of the Future” by Bruno Frey," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 35(1), pages 111-116, June.
    13. Dow,Gregory K., 2019. "The Labor-Managed Firm," Cambridge Books, Cambridge University Press, number 9781107589650, January.
    14. Hueth, Brent & Marcoul, Philippe, 2007. "The Cooperative Firm as Monitored Credit," Staff Papers 92122, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    15. Brent Hueth & Philippe Marcoul, 2015. "Agents Monitoring Their Manager: A Hard‐Times Theory of Producer Cooperation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(1), pages 92-109, March.

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    More about this item

    Keywords

    Unemployment Insurance; Experience Rating; Layoffs;
    All these keywords.

    JEL classification:

    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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