The Foundations of the 'Public' Organisation: Strategic Control and the Problem of the Costs of Exclusion

22 Pages Posted: 3 Jan 2018

See all articles by Silvia Sacchetti, Phd

Silvia Sacchetti, Phd

University of Trento; European Research Institute on Cooperative & Social Enterprises (EURICSE)

Carlo Borzaga

University of Trento; European Research Institute on Cooperative & Social Enterprises (EURICSE)

Date Written: December 4, 2017

Abstract

Henry Hansmann has argued that ownership is best allocated to only one group of homogeneous patrons, the group for which the total of cost of governance and contracting is minimized. This paper suggests a different model of governance, which is inclusive of multiple affected patrons, and which is growing especially in welfare service provision. The model considers an additional set of costs, the costs of excluding certain groups of patrons from the firm’s strategic control. The objective, which is Coasean in both spirit and formulation, is: (1) to reiterate the need to separate ownership and control by considering strategic control beyond ownership, (2) to show that the emergence of firms where control is shared among different groups of patrons can be explained as a way to economize on exclusion costs, and (3) to argue that the efficient governance structure must minimize the sum of internal costs for sharing control and the costs for contracting, and add also the costs of exclusion for all the firm’s patrons combined. The paper argues that this setup helps explain the public organisation, defined as a private organisation with public interest objectives, and further claims that this model helps justifying the recent emergence of multi-stakeholder social enterprises within the third sector.

Keywords: Firms, Governance, Externalities, Stakeholding

JEL Classification: L2, H23, M14, O16, P14

Suggested Citation

Sacchetti, Silvia and Borzaga, Carlo, The Foundations of the 'Public' Organisation: Strategic Control and the Problem of the Costs of Exclusion (December 4, 2017). Euricse Working Papers, No. 98 | 17. Available at SSRN: https://ssrn.com/abstract=3095525 or http://dx.doi.org/10.2139/ssrn.3095525

Silvia Sacchetti (Contact Author)

University of Trento ( email )

Via Giuseppe Verdi 26
Trento, Trento 38152
Italy

European Research Institute on Cooperative & Social Enterprises (EURICSE)

Via S. Giovanni 36
38122 Trento (TN)
Italy

Carlo Borzaga

University of Trento ( email )

Via Giuseppe Verdi 26
Trento, Trento 38152
Italy

European Research Institute on Cooperative & Social Enterprises (EURICSE) ( email )

Via S. Giovanni 36
38122 Trento (TN)
Italy

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