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Rights and Production Functions: An Application to Labor Managed Firms and Codetermination


Michael C. Jensen


Harvard Business School; Social Science Electronic Publishing (SSEP), Inc.; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

William H. Meckling


Simon School, University of Rochester (Deceased)

June 30, 2000

A THEORY OF THE FIRM: GOVERNANCE, RESIDUAL CLAIMS AND ORGANIZATIONAL FORMS, Harvard University Press, December 2000
Harvard Business School NOM Unit Working Paper No. 2000

Abstract:     
It is traditional in the theory of the firm to define the production opportunity set available to the firm in terms of its boundary the maximum attainable set of output quantities for various input quantities, given the state of technology and knowledge. This boundary is the production function of the firm. One of our purposes here is to point out the dependence of such production functions on the structure of property rights and contracting rights within which the firm exists. We redefine the production function in order to recognize the dependence of output on the structure of property and contracting rights. That expanded framework is then used to discuss a concrete set of problems surrounding the role of labor in the firm ranging from the labor-managed firm system (in which tradable capital value residual claims [common stock] are legally prohibited), and the codetermination and industrial democracy movements (in which management participation by labor is required by law), to cooperatives and professional partnerships (i.e., quasi-labor-managed firms which arise out of the voluntary contracting process), and the capitalist corporation.

Number of Pages in PDF File: 55

Keywords: Labor Managed Firm, Property Rights, Contract Rights and Production Functions, Rules of the Game, Nexus of Contracts, Codetermination, Industrial Democracy, Cooperatives and Professional Partnerships

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Date posted: October 11, 2000 ; Last revised: January 17, 2011

Suggested Citation

Jensen, Michael C. and Meckling, William H., Rights and Production Functions: An Application to Labor Managed Firms and Codetermination (June 30, 2000). A THEORY OF THE FIRM: GOVERNANCE, RESIDUAL CLAIMS AND ORGANIZATIONAL FORMS, Harvard University Press, December 2000; Harvard Business School NOM Unit Working Paper No. 2000. Available at SSRN: http://ssrn.com/abstract=173460 or http://dx.doi.org/10.2139/ssrn.173460

Contact Information

Michael C. Jensen (Contact Author)
Harvard Business School ( email )
Soldiers Field
Negotiations, Organizations & Markets
Boston, MA 02163
United States
617-510-3363 (Phone)
305-675-3166 (Fax)
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=6484
Social Science Electronic Publishing (SSEP), Inc. ( email )
7858 Sanderling Road
Sarasota, FL 34242
United States
617-510-3363 (Phone)
305 675-3166 (Fax)
HOME PAGE: http://ssrn.com/author=9

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
William H. Meckling
Simon School, University of Rochester (Deceased)
Feedback to SSRN (Beta)


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