Managerial Rents and Outside Recruitment in the Coasian Firm
In the corporation, decision making about the use of capital by managers and risk taking by the owners of capital are specialized activities. Various institutional mechanisms have been analyzed as forces disciplining the opportunistic behavior of management under these conditions. We maintain that no single mechanism, such as wage revision in the managerial labor market or an internal device that relies on influencing incentives by making executives residual claimants in the firm, is sufficient to solve problems of managerial incentives. Instead, the margins of several control devices are extended simultaneously to maximize the value of the firm, net of the cost of control. In this context we will emphasize one means of managerial control which has not been fully analyzed to date—the impact of outside hiring on the behavior of incumbent managers.
KeywordsFirm Performance Chief Executive Officer Stock Option Indifference Curve Regulate Firm
Unable to display preview. Download preview PDF.
- Alchian, A.A., and Demsetz, H. “Production, Information Costs, and Economic Organization.” American Economic Review 62 (December, 1972 ): 777–95.Google Scholar
- Coase, R. H. “The Nature of the Firm.” Economica 4 (November, 1937): 386–405. Fama, E. F. “Agency Problems and the Theory of the Firm.” Journal of Political Economy 88 (April, 1980 ): 288–307.Google Scholar
- Jensen, M. C. and Meckling, W. H. “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure.” Journal of Financial Economics 3 (October, 1976 ): 305–60.Google Scholar
- Klein, B.; Crawford, R. G.; and Alchian, A. A. “Vertical Integration, Appropriable Rents, and the Competitive Contracting Process.” Journal of Law and Economics 21 (October, 1978 ): 297–326.Google Scholar
- Manne, H. G. “Mergers and the Market for Corporate Control. Journal of Political Economy 73 (April, 1965 ): 110–20.Google Scholar
- Telser, L. G. “A Theory of Self-Enforcing Agreements.” Journal of Business 53 (January, 1980 ): 27–44.Google Scholar
- Williamson, O. E. Markets and Hierarchies: Analysis and Antitrust Implications. New York: The Free Press, 1975.Google Scholar
- Williamson, O. E.; Wachter, M. C.; and Harris, J.E. “Understanding the Employment Relation: The Analysis of Idiosyncratic Exchange.” Bell Journal of Economics 6 (Spring 1975 ): 250–78.Google Scholar
- Forbes,June 8, 1981.Google Scholar
- Standard and Poor’s Compustat I1 Services, Inc., Compustat,1980.Google Scholar