Ownership and managerial competition: employee, customer, or outside ownership

Bolton, Patrick and Xu, Cheng-Gang (2001) Ownership and managerial competition: employee, customer, or outside ownership. TE/01/412. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.

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Abstract

This paper centres around the question of ownership of firms and managerial competition and how these affect managers and employees’ incentives to invest in human capital. We argue that employees’ incentives in human capital investment are affected by both ownership and competition since both ownership structure and competition provide bargaining chips to employees. Ownership provides protections which may improve or dull employees’ incentives for human capital investment. When there is fierce market competition and no lock-in the allocation of ownership does not play a role (as one might expect), provided that human and physical assets are sufficiently complementary. If asset complementarity is low, ownership matters even in the absence of lock-in. In general, the most efficient ownership arrangement is that which maximizes managerial competition inside the firm.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://sticerd.lse.ac.uk/
Additional Information:	© 2001 by the authors
Uncontrolled Keywords:	Ownership; competition; incomplete contracts; human capital
Library of Congress subject classification:	H Social Sciences > HD Industries. Land use. Labor
Journal of Economic Literature Classification System:	D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L20 - General D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior D - Microeconomics > D4 - Market Structure and Pricing > D40 - General
Sets:	Collections > Economists Online Departments > Economics
Rights:	http://www.lse.ac.uk/library/rights/LSERO.htm
Identification Number:	TE/01/412
URL:	http://eprints.lse.ac.uk/3749/

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