Capitalists and workers: knowledge and the strategic role of investment within the firm
European Economic Review, 38, (9), . (doi:10.1016/0014-2921(94)90050-7).
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Does the ownership of capital confer a strategic advantage within the firm? The formation of a firm frequently represents an attempt by an individual to secure a return on knowledge, and we demonstrate that, in this context, there can be an incentive to precommit capital before contracting with other members of the firm - that is, to be the ‘capitalist’. Results are also obtained on the investment level and wage rate. The key ingredient of the model is emergence of a product market entry threat from within the firm. This contrasts with the anonymous external potential entrant prevalent in the literature.
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