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Collective Choice and Control Rights in Firms
Author(s) -
DOW GREGORY K.,
SKILLMAN GILBERT L.
Publication year - 2007
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2007.00300.x
Subject(s) - unanimity , capital (architecture) , economics , control (management) , maximization , labour economics , human capital , monetary economics , capital call , microeconomics , financial capital , business , market economy , individual capital , management , archaeology , political science , law , history
Abstract Recent writers have asserted that firms controlled by workers are rare because workers have diverse preferences over firm policies, while investors all support wealth maximization. However, the source of the asymmetry between capital and labor remains unclear. We resolve this puzzle by arguing that because financial capital is exceptionally mobile, capital markets induce unanimity. The lower mobility of human capital implies that labor markets are monopolistically competitive and hence that unanimity cannot be expected in labor‐managed firms. Moreover, such firms are vulnerable to takeover by investors, while capital‐managed firms are substantially less vulnerable to takeover by workers.