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Allocating Control over Firms: Stock Markets versus Membership Markets

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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.

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Authors and Affiliations

  1. Department of Economics, Simon Fraser University, Burnaby, British Columbia, V5A 1S6, Canada

    Gregory K. Dow

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Dow, G.K. Allocating Control over Firms: Stock Markets versus Membership Markets. Review of Industrial Organization 18, 201–218 (2001). https://doi.org/10.1023/A:1007827532310

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