Access, Veto and Ownership in the Theory of the Firm

Abstract

Ownership may not always be the best driver for investment incentives in an incomplete contract context. This paper shows that ownership has two facets (access and veto) which can be used specifically, and sometimes independently, to foster investment. Access is more efficient than ownership when assets are complements at the margin, and veto is sometimes more efficient when assets are substitutes at the margin. In particular, outside veto is more efficient than ownership because it reduces the incentive to invest on substitute assets. And joint veto is more efficient than ownership because it protects the incentives of highly productive agents while preventing them to merge the asset with substitute assets. We discuss several implications, in particular the existence of shareholders and non-owner workers, the optimality of outside ownership, joint ownership and partnerships, hybrid governance structures, employments contracts and capital structure (debt vs equity).