ABSENT fiat, the form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs.1 Our goal is to explain the survival of organizations characterized by separation of "ownership" and "control"-a problem that has bothered students of corporations from Adam Smith to Berle and Means and Jensen and Meckling.2 In more precise language, we are concerned with the survival of organizations in which important decision agents do not bear a substantial share of the wealth effects of their decisions. We argue that the separation of decision and risk-bearing functions observed in large corporations is common to other organizations such as large professional partnerships, financial mutuals, and nonprofits. We contend that separation of decision and risk-bearing functions survives in these organizations in part because of the benefits of specialization of

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Separation of ownership and control

This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.

A Survey of Corporate Governance

This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world. CORPORATE GOVERNANCE DEALS WITH the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? At first glance, it is not entirely obvious why the suppliers of capital get anything back. After all, they part with their money, and have little to contribute to the enterprise afterward. The professional managers or entrepreneurs who run the firms might as well abscond with the money. Although they sometimes do, usually they do not. Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance. But this does not imply that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. In fact, the subject of corporate governance is of enormous practical impor

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Social and economic activities, like religion, entertainment, education, research, and the production of other goods and services, are carried on by different types of organizations, for example, corporations, proprietorships, partnerships, mutuals and nonprofits. There is competition among organizational forms for survival. The form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs. The characteristics of residual claims are important both in distinguishing organizations from one another and in explaining the survival of organizational forms in specific activities. This paper develops a set of propositions that explaim the special features of the residual claims of different organizational forms as efficient approaches to controlling agency problems. © M. C. Jensen and E. F. Fama, 1983 Michael C. Jensen, Foundations of Organizational Strategy Chapter 6, Harvard University Press, 1998. Journal of Law & Economics, Vol XXVI (June 1983) This document is available on the Social Science Research Network (SSRN) Electronic Library at: http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=94032 AGENCY PROBLEMS AND RESIDUAL CLAIMS

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Agency Problems and Residual Claims

The 2008 crash has left all the established economic doctrines - equilibrium models, real business cycles, disequilibria models - in disarray. Part of the problem is due to Smith’s "veil of ignorance": individuals unknowingly pursue society’s interest and, as a result, have no clue as to the macroeconomic effects of their actions: witness the Keynes and Leontief multipliers, the concept of value added, fiat money, Engel’s law and technical progress, to name but a few of the macrofoundations of microeconomics. A good viewpoint to take bearings anew lies in comparing the post-Great Depression institutions with those emerging from Thatcher and Reagan’s economic policies: deregulation, exogenous vs. endoge- nous money, shadow banking vs. Volcker’s Rule. Very simply, the banks, whose lending determined deposits after Roosevelt, and were a public service became private enterprises whose deposits determine lending. These underlay the great moderation preceding 2006, and the subsequent crash.

The Economic Institutions of Capitalism

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The Role of Nonprofit Enterprise

Preface Introduction PART 1: A Theory of Enterprise Ownership 1. An Analytic Framework 2. The Costs of Contracting 3. The Costs of Ownership PART 2: Producer-Owned Enterprise 4. Invertor-Owned Firms 5. The Benefits and Costs of Employee Ownership 6. Governing Employee-Owned Firms 7. Agricultural and Other Producer Cooperatives PART 3: Customer-Owned Enterprise 8. Retail, Wholesale, and Supply Firms 9. Utilities 10. Clubs and Other Associative Organizations 11. Housing PART 4: Nonprofit and Mutual Enterprise 12. Nonprofit Firms 13. Banks 14. Insurance Companies Conclusion Notes Sources Index

The ownership of enterprise

The basic law of corporate governance—indeed, most of corporate law—has achieved a high degree of uniformity across developed market jurisdictions, and continuing convergence toward a single, standard model is likely. It is sometimes said that the shareholder-oriented model of corporate law is well suited only to those jurisdictions in which one finds large numbers of firms with widely dispersed share ownership, such as the United States and the United Kingdom. The core legal features of the corporate form were already well established in advanced jurisdictions one hundred years ago, at the turn of the twentieth century. Thus, just as there was rapid crystallization of the core features of the corporate form in the late nineteenth century, at the beginning of the twenty-first century we are witnessing rapid convergence on the standard shareholder-oriented model as a normative view of corporate structure and governance.

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The End of History for Corporate Law

Introduction Most large-scale enterprise in the United States is organized in the form of the conventional business corporation, in which the firm is collectively owned by investors of capital. Other ownership patterns are prominent in a number of important industries, however. Many firms, for example, are owned by their customers. These include not just consumer retail cooperatives, which are relatively rare, but also business-owned wholesale and supply cooperatives, which are quite common, as well as public utility cooperatives, mutual insurance companies, mutual banking institutions, and cooperative and condominium housing. Further, many firms are owned by persons who supply the firm with some factor of production other than capital. Worker-owned firms, which predominate in professional services such as law and accounting, are conspicuous examples, as are the agricultural processing and marketing cooperatives that dominate the markets for many farm products. Finally, a number of important service industries are heavily populated by nonprofit firms, which have no owners at all. In this essay I explore the economic factors responsible for these different patterns of ownership. In recent years a number of scholars have explored various aspects of enterprise ownership. In particular, Williamson and Klein, Crawford, and Alchian have dealt insightfully with the influence of transactionspecific investments on the assignment of ownership, and I shall draw heavily here on the concepts they have developed. Similarly, a number of writers have looked at questions of ownership in particular contexts.

https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=6052&context=fss_papers

Ownership of the Firm

Limited liability in tort has been the prevailing rule for corporations in the United States, as elsewhere, for more than a century. This rule is generally acknowledged to create incentives for excessive risk-taking by permitting corporations to avoid the full costs of their activities. Nevertheless, these incentives are conventionally assumed to be the price of securing efficient capital financing for corporations. Although several authors have recently proposed curtailing limited liability for certain classes of tort claims or for certain types of corporations in order to control its worst abuses, even the most

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Henry Hansmann

Papers

The Role of Nonprofit Enterprise

The ownership of enterprise

The End of History for Corporate Law

Ownership of the Firm

Toward Unlimited Shareholder Liability for Corporate Torts