Sunk costs of capital and predominance of investor-owned firms in market economies

摘要

This paper examines why investor-owned firms are predominant in market economies. It is assumed that firm owners and outside traders are asymmetrically informed of venture risks, and that are sunk costs associated with investment in physical and human capital. Then, we undertake an efficiency comparison between investor-owned and worker-owned firms. We find that it is efficient when the input supplier (the investor or worker) who incurs large sunk costs owns the firm. 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.