The dynamics of ownership and redistribution
The objective of this dissertation is to contribute to the understanding of the interaction between ownership and efficiency when sequential decisions are taken by majority voting. The first chapter analyzes the influence of dynamic voting in the productive efficiency of a firm. Inefficiencies arise as a result of conflict in decision making concerning two decisions: technology choice and distribution of aggregate production. Two distinct constitutions are considered: employee and outside ownership. When the initial constitution turns out to be inefficient, the firm's owners can hand over control rights to efficient investors in exchange for a selling price. Constitutional change, by allowing current owners to internalize social surplus, would in principle increase efficiency. Yet constitutional change will never take place, giving rise to institutional inertia. The second chapter considers the effect of redistribution on efficiency in a the framework of a general cooperative where both the set of alternatives and the preference profile of voters is unrestricted. Efficiency is defined by a public decision, i.e. the implementation of a productive technology, as well as by a collection of individual investment decisions, i.e. employees' choice of effort. The first result provides conditions that, by restricting conflicts of interest in redistribution, ensure the existence of equilibrium in collective choice. It turns out that, provided that an equilibrium exists, the technology implemented in the firm is always Pareto efficient. This result holds even if it may lead to greater distortions in employees' choice of effort. The remaining analysis compares the direct effect of redistribution on efficiency via employees' individual investment with its indirect effect via distortions on technology choice. The last chapter investigates the effect of privatization on the efficiency of a public firm within the context of a representative democracy. Public decisions are implemented by a self-interested government selected by majority voting. Collective choice is embodied by the firm's regulation policy as well as by the tax shedule imposed on citizens. Provided privatization takes place, two polar ownership structures are analyzed: concentrated and dispersed ownership. The main result is that concentrated ownership, by favoring the participation of lobbies in the political game, may increase the efficiency of a regulated firm. This result is robust to both a hidden information model and a normal hazard approach.