![]() What is not clearly understood is why labor bargains rationally (in the absence of greed) for a share of productivity gains. The model is correct in thinking labor works for a wage and the residual income belongs to the person who bears the residual risk. Residual claimant theory is not very helpful in understanding labor's claim on productivity gains. Competition without cooperation leads to acts of violence and social instability. All economic decisions are moral decisions. Faulty premises lead down into reductionist rabbit holes. I say this as an economist who builds models to explain concepts, but are limited in ability to explain reality. However, the danger in this style of reasoning is to oversimplify complex interdependent systems, separating logic from morality. ![]() ![]() In fact, for me to understand anything I must usually grasp it in the simplest possible terms, which can be infuriating to others better graced with intelligence than I am, but can be an advantage, since when I understand something I tend to have it pretty well locked down and am able to explain it to others. Corporate Ownership & Control, 1(4), 13-29.I don't find it hard to believe at all that the difference is more obvious than I think - sometimes extremely obvious things escape me, and I have only as much wit as the Good Lord saw fit to give me. Corporate governance, capital theory, and corporate finance theory: An approach from property theory. Keywords: Capital Theory, Corporate Governance, Corporate Finance, Property Rights Many of the "ownership" assertions that fuel the debate about enterprise governance are groundless, and the discounting of future enterprise net returns beyond the horizon of current contracts does not represent the valuation of current property rights. This simple result thus has rather strong implications for considerations of enterprise governance as well as for capital theory and corporate finance theory. For another party to take over the enterprise, it is sufficient to redo the contracts, not "buy the firm." Since a corporation’s paid contracts at best extend only a few years into the future, there is no basis for the common assumption in capital theory or corporate finance theory that the corporation "owns" the future enterprise cash flows in perpetuity. There is the ownership of a conventional joint stock corporation, but a corporation does not "own" the enterprise that it is currently undertaking by virtue of its contractual position. In this sense, there is no such thing as the "ownership of the firm" since the party undertaking an enterprise, the residual claimant, is determined by the direction of the hiring contracts. Thus the determination of who undertakes an enterprise is contractually determined it is not an owned property right. But either way, it is not determined who is legally undertaking the enterprise until the contracts between the factor suppliers are given. An enterprise could be described concretely as specific people working with specific machines producing a certain product or it could be described more abstractly using the economists’ notion of a production function. The structure of the main results is that what often appears as being an owned property right is upon analysis seen to be only a contractual position-and contractual positions only extend a few years into the future. There are strong implications for capital theory and corporate finance theory. An analysis of the corporate governance debate is developed using a descriptive theory about the system of private property and contract in a market economy.
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