Socialism and Intrafirm Asset Allocation


  • We would like to thank the participants at a seminar at the Universität Zürich, where parts of this paper were presented. We are indebted to an anonymous referee, John Doukas, Dennis Sheehan, and Gabrielle Wanzenried for comments and suggestions. Many thanks also go to Nancy Macmillan for the great editorial help.

Claudio Loderer, Engehaldenstrasse 4, 3012 Bern, Switzerland.


We rely on a survey of Swiss firms to document deviation from first-best for reasons of internal ‘fairness’ when allocating resources. This ‘socialist’ practice is more widespread in smaller than in larger firms. It ignores the reputation and past performance of the managers who apply for funding, but takes into account their hierarchical position and their past use of resources. Socialism is only partially explained by concerns about empire building and managerial optimism, and it is not meant to benefit shareholders.