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SUNK COSTS OF CAPITAL AND THE FORM OF ENTERPRISE: INVESTOR-OWNED FIRMS AND WORKER-OWNED FIRMS*

Authors


  • *

    The authors would like to thank Hiroyuki Odagiri and seminar participants at Kobe University and University of Hyogo for helpful comments. Constructive critique by an anonymous referee was extremely useful to improve the paper and is gratefully acknowledged. Email: mikami@econ.u-hyogo.ac.jp; tanaka@inst.kobe-cufs.ac.jp

  • **

    Résumé en fin d'article; Zusammenfassung am Ende des Artikels; resumen al final del artículo.

Abstract

ABSTRACT**: This paper examines implications of sunk costs of capital for efficient forms of enterprise. It is assumed that firm owners and outside traders are asymmetrically informed of venture risks, and that there are sunk costs associated with investment in physical and human capital. We then make an efficiency comparison between investor-owned and worker-owned firms. We find that the firm is efficient when it is owned by the input supplier (the investor or worker) who incurs large sunk costs. This is because such an input supplier can credibly signal to the other input supplier that he in fact has a safe project. An empirical study based on the Japanese manufacturing industry seems to support the theoretical result.

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