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Ownership of firms and efficiency: The competence argument

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Abstract

To assess alternative forms of ownership of firms and allocation of capital, the standard incentive argument is complemented and qualified by an argument considering competence. Regarding capital as a currency conveying decision authority for organizing production, this argument recognizes that the competence for exercising this authority is scarce. The allocation of this competence is studied as the key part of the allocation of scarce economic competence, which requires organizational change and determines the efficiency of allocation of all scarce resources, including economic competence itself. Comparative institutional analysis reveals the superiority of a constitution that requires private and tradeable ownership of firms and open entry to capital markets in the organization of supply, while it limits economic inequalities and provides for policies intervening in competence-requiring final demand.

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Authors and Affiliations

  1. The Industrial Institute for Economic and Social Research, Box 5501, S-114 85, Stockholm

    Pavel Pelikan

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  1. Pavel Pelikan
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The financial support of the Tore Browaldh Foundation, Stockholm, is gratefully acknowledged. I am also grateful to Kenneth Burdett, Gunnar Eliasson, Stefan Fölster, Geoffrey Hodgson, Michael Intriligator, Robert Lucas, Douglass North, Lars Oxelheim, Jose Scheinkman, Richard Wagner, Claes Wihlborg, and two anonymous referees for helpful comments. None of them is responsible for my conclusions or the remaining errors.

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Pelikan, P. Ownership of firms and efficiency: The competence argument. Constit Polit Econ 4, 349–392 (1993). https://doi.org/10.1007/BF02393268

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