Markets for Ownership

Joshua S. Gans, Melbourne Business School, University of Melbourne

Abstract

The prevailing theory of the firm demonstrates that ownership by dispensable, outside parties is inefficient relative to ownership by productive agents. To better understand observed patterns of ownership, this paper analyzes markets for ownership, demonstrating that outside parties will often become asset owners. Outside parties only earn rents from ownership whereas productive agents can earn rents even as non-owners. Given that their contribution is complementary with other productive agents this mutes their willingness to pay for ownership relative to outsiders. The main conclusion is that the nature of ownership markets stands alongside incentives as an important predictor of firm boundaries.