Advertisement

Review of Industrial Organization

, Volume 18, Issue 2, pp 201–218 | Cite as

Allocating Control over Firms: Stock Markets versus Membership Markets

  • Gregory K. Dow
Article

Abstract

The theory of the firm must explain howdecision-making powers are allocated between suppliersof capital and labor. Most large enterprises awardformal control to investors rather than workers. Isuggest here that this asymmetry can be traced in partto differences between stock markets and membershipmarkets as institutional mechanisms for allocatingcontrol over firms. The attractive theoreticalproperties of membership markets are examined, alongwith some factors that may account for their rarity inpractice. These practical difficulties help explainthe rarity of labor-managed firms themselves, alongwith various facts about their design, behavior, anddistribution across industries.

Control rights stock markets labor-managed firms 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Alchian, Armen, and Harold Demsetz (1972)‘Production, Information Costs, and Economic Organization’ American Economic Review, 62, 777–795.Google Scholar
  2. Benham, Lee, and Philip Keefer (1991)‘Voting in Firms: The Role of Agenda Control, Size and Voter Homogeneity’ Economic Inquiry, 29, 706–719.Google Scholar
  3. Ben-Ner, Avner (1984)‘On the Stability of the Cooperative Type of Organization’ Journal of Comparative Economics, 8, 247–260.Google Scholar
  4. Ben-Ner, Avner (1988a)‘Comparative Empirical Observations on Worker-Owned and Capitalist Firms’ International Journal of Industrial Organization, 6, 7–31.Google Scholar
  5. Ben-Ner, Avner (1988b)‘The Life Cycle of Worker-Owned Firms in Market Economies: A Theoretical Analysis’ Journal of Economic Behavior and Organization, 10, 287–313.Google Scholar
  6. Ben-Ner, Avner, and Byoung Jun (1996)‘Buy-Out in a Bargaining Game with Asymmetric Information’ American Economic Review, 86, 502–523.Google Scholar
  7. Ben-Ner, Avner, Allen Burns, Gregory Dow, and Louis Putterman (2000)‘Employee Ownership: An Empirical Exploration’ in Margaret Blair and Thomas Kochan, eds., The New Relationship: Human Capital in the American Corporation. Washington, D.C.: Brookings Institution, pp. 194–233.Google Scholar
  8. Blair, Margaret, Douglas Kruse, and Joseph Blasi (2000)‘Employee Ownership: An Unstable Form or a Stabilizing Force?’ in Margaret Blair and Thomas Kochan, eds., The New Relationship: Human Capital in the American Corporation. Washington, D.C.: Brookings Institution, pp. 241–288.Google Scholar
  9. Bonin, John, and Louis Putterman (1987) Economics of Cooperation and the Labor-Managed Economy, Fundamentals of Pure and Applied Economics, No. 14. New York: Harwood Academic Publishers.Google Scholar
  10. Bonin, John, Derek Jones, and Louis Putterman (1993)‘Theoretical and Empirical Studies of Producer Cooperatives: Will Ever the Twain Meet?’ Journal of Economic Literature, 31, 1290–1320.Google Scholar
  11. Craig, Ben, and John Pencavel (1992)‘The Behavior of Worker Cooperatives: The Plywood Companies of the Pacific Northwest’ American Economic Review, 82, 1083–1105.Google Scholar
  12. Craig, Ben, and John Pencavel (1995)‘Participation and Productivity: A Comparison of Worker Cooperatives and Conventional Firms in the Plywood Industry’ Brookings Papers in Economic Activity-Microeconomics, pp. 121–174.Google Scholar
  13. Dow, Gregory (1986)‘Control Rights, Competitive Markets, and the Labor Management Debate’ Journal of Comparative Economics, 10, 48–61.Google Scholar
  14. Dow, Gregory (1993)‘Why Capital Hires Labor: A Bargaining Perspective’ American Economic Review, 83, 118–134.Google Scholar
  15. Dow, Gregory (1996)‘Replicating Walrasian Equilibria Using Markets for Membership in Labormanaged Firms’ Economic Design, 2, 147–162.Google Scholar
  16. Dow, Gregory, and Louis Putterman (1999)‘Why Capital (Usually) Hires Labor: An Assessment of Proposed Explanations’ in Margaret Blair and Mark Roe, eds., Employees and Corporate Governance. Washington, D.C.: Brookings Institution, pp. 17–57.Google Scholar
  17. Dow, Gregory K., and Louis Putterman (2000)‘Why Capital Suppliers (Usually) Hire Workers: What We Know and What We Need to Know’ Journal of Economic Behavior and Organization, 43, 319–336.Google Scholar
  18. Dreze, Jacques (1989) Labour Management, Contracts and Capital Markets: A General Equilibrium Approach. Oxford: Basil Blackwell.Google Scholar
  19. Estrin, Saul, Derek Jones, and Jan Svejnar (1987)‘The Productivity Effects of Worker Participation: Producer Cooperatives in Western Economies’ Journal of Comparative Economics, 11, 40–61.Google Scholar
  20. Eswaran, Mukesh, and Ashok Kotwal (1989)‘Why Are Capitalists the Bosses?’ Economic Journal, 99, 162–176.Google Scholar
  21. Gintis, Herbert (1989)‘Financial Markets and the Political Structure of the Enterprise’ Journal of Economic Behavior and Organization, 11, 311–322.Google Scholar
  22. Gordon, Jeffrey (1999)‘Employee Stock Ownership in Economic Transitions: The Case of United and the Airline Industry’ in Margaret Blair and Mark Roe, eds., Employees and Corporate Governance. Washington, D.C.: Brookings Institution, pp. 317–354.Google Scholar
  23. Grossman, Sanford, and Oliver Hart (1986)‘The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration’ Journal of Political Economy, 94, 691–719.Google Scholar
  24. Hansmann, Henry (1996) The Ownership of Enterprise. Cambridge, MA: The Belknap Press of Harvard University Press.Google Scholar
  25. Hart, Oliver, and John Moore (1990)‘Property Rights and the Nature of the Firm’ Journal of Political Economy, 98, 1119–1158.Google Scholar
  26. Hart, Oliver, and John Moore (1994)‘A Theory of Debt Based on the Inalienability of Human Capital’ Quarterly Journal of Economics, 109, 841–879.Google Scholar
  27. Holmstrom, Bengt (1982)‘Moral Hazard in Teams’ Bell Journal of Economics, 13, 324–340.Google Scholar
  28. Holmstrom, Bengt, and Paul Milgrom (1994)‘The Firm as an Incentive System’ American Economic Review, 84, 972–991.Google Scholar
  29. Jensen, Michael, and William Meckling (1979)‘Rights and Production Functions: An Application to Labor-Managed Firms and Codetermination’ Journal of Business, 52, 469–506.Google Scholar
  30. Jones, Derek, and Takao Kato (1995)‘The Productivity Effects of Employee Stock-Ownership Plans and Bonuses: Evidence from Japanese Panel Data’ American Economic Review, 85, 391–414.Google Scholar
  31. Kihlstrom, Richard, and Jean-Jacques Laffont (1979)‘A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion’ Journal of Political Economy, 87, 719–748.Google Scholar
  32. Klein, Benjamin, Robert Crawford, and Armen Alchian (1978)‘Vertical Integration, Appropriable Rents, and the Competitive Contracting Process’ Journal of Law and Economics, 21, 297–326.Google Scholar
  33. Kremer, Michael (1997)‘Why Are Worker Cooperatives So Rare?’ NBER Working Paper 6118, NBER, Cambridge, MA.Google Scholar
  34. Kruse, Douglas (1993) Profit Sharing: Does It Make a Difference? Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.Google Scholar
  35. Meade, James (1972)‘The Theory of Labour-Managed Firms and Profit-Sharing’ Economic Journal, 82(supplement), 402–428.Google Scholar
  36. Miceli, Thomas, and Alanson Minkler (1995)‘Transfer Uncertainty and Organizational Choice’ Advances in the Economic Analysis of Participatory and Labor-Managed Firms, 5, 121–137.Google Scholar
  37. Miyazaki, Hajime (1984)‘On Success and Dissolution of the Labor-Managed Firm in the Capitalist Economy’ Journal of Political Economy, 92, 909–931.Google Scholar
  38. Ognedal, Tone (1993)‘Unstable Ownership’ in Samuel Bowles, Herbert Gintis, and Bo Gustafsson, eds., Markets and Democracy: Participation, Accountability and Efficiency. New York: Cambridge University Press, pp. 248–259.Google Scholar
  39. Pencavel, John, and Ben Craig (1994)‘The Empirical Performance of Orthodox Models of the Firm: Conventional Firms and Worker Cooperatives’ Journal of Political Economy, 102, 718–744.Google Scholar
  40. Prychitko, David L., and Jaroslav Vanek, eds. (1996) Producer Cooperatives and Labor-Managed Systems (2 vols.). Cheltenham: Edward Elgar Publishing Co.Google Scholar
  41. Putterman, Louis (1984)‘On Some Recent Explanations of Why Capital Hires Labor’ Economic Inquiry 22, 171–187.Google Scholar
  42. Putterman, Louis (1993)‘Ownership and the Nature of the Firm’ Journal of Comparative Economics, 17, 243–263.Google Scholar
  43. Sertel, Murat (1982)‘A Rehabilitation of the Labor-Managed Firm’ Ch. 2 in Workers and Incentives. Amsterdam: North-Holland.Google Scholar
  44. Stiglitz, Joseph, and Andrew Weiss (1981)‘Credit Rationing in Markets with Imperfect Information’ American Economic Review, 71, 393–410.Google Scholar
  45. Wadhwani, Sushil, and Martin Wall (1990)‘The Effects of Profit Sharing on Employment, Wages, Stock Returns and Productivity: Evidence from UK Micro Data’ Economic Journal, 100, 1–17.Google Scholar
  46. Weitzman, Martin, and Douglas Kruse (1990)‘Profit Sharing and Productivity’ in Alan Blinder, ed., Paying for Productivity. Washington, D.C.: Brookings Institution, pp. 95–141.Google Scholar
  47. Whyte, William, and Kathleen Whyte (1988) Making Mondragon: The Growth and Dynamics of the Worker Cooperative Complex. Ithaca, NY: ILR Press, Cornell.Google Scholar
  48. Williamson, Oliver (1980)‘The Organization of Work’ Journal of Economic Behavior and Organization, 1, 5–38.Google Scholar
  49. Williamson, Oliver (1985) The Economic Institutions of Capitalism. New York: Free Press.Google Scholar
  50. Williamson, Oliver (1988)‘Corporate Finance and Corporate Governance’ Journal of Finance, 43, 567–591.Google Scholar

Copyright information

© Kluwer Academic Publishers 2001

Authors and Affiliations

  • Gregory K. Dow
    • 1
  1. 1.Department of EconomicsSimon Fraser UniversityBurnabyCanada

Personalised recommendations