eprintid: 25663 rev_number: 11 eprint_status: archive userid: 1482 importid: 105 dir: disk0/00/02/56/63 datestamp: 2018-05-07 14:21:32 lastmod: 2021-04-02 15:57:22 status_changed: 2018-05-07 14:21:32 type: article metadata_visibility: show creators_name: Magill, Michael creators_name: Quinzii, Martine creators_name: Rochet, Jean-Charles creators_idrefppn: 034600213 creators_idrefppn: 028613112 creators_idrefppn: 03062620X creators_affiliation: Toulouse School of Economics (IDEI), Toulouse, France title: A Theory of the Stakeholder Corporation ispublished: pub subjects: subjects_ECO abstract: There is a widely held view within the general public that large corporations should act in the interests of a broader group of agents than just their shareholders (the stakeholder view). This paper presents a framework where this idea can be justified. The point of departure is the observation that a large firm typically faces endogenous risks that may have a significant impact on the workers it employs and the consumers it serves. These risks generate externalities on these stakeholders which are not internalized by shareholders. As a result, in the competitive equilibrium, there is under-investment in the prevention of these risks. We suggest that this under-investment problem can be alleviated if firms are instructed to maximize the total welfare of their stakeholders rather than shareholder value alone (stakeholder equilibrium). The stakeholder equilibrium can be implemented by introducing new property rights (employee rights and consumer rights) and instructing managers to maximize the total value of the firm (the value of these rights plus shareholder value). If there is only one firm, the stakeholder equilibrium is Pareto optimal. However, this is not true with more than one firm and/or heterogeneous agents, which illustrates some of the limits of the stakeholder model. date: 2015-09 date_type: published publisher: Econometric Society id_number: 10.3982/ECTA11455 official_url: http://tse-fr.eu/pub/31945 faculty: tse divisions: tse language: en has_fulltext: FALSE doi: 10.3982/ECTA11455 view_date_year: 2015 full_text_status: none publication: Econometrica volume: 83 number: 5 pagerange: 1685-1725 refereed: TRUE issn: 0012-9682 oai_identifier: oai:tse-fr.eu:31945 harvester_local_overwrite: issn harvester_local_overwrite: faculty harvester_local_overwrite: publisher harvester_local_overwrite: creators_affiliation harvester_local_overwrite: id_number harvester_local_overwrite: doi harvester_local_overwrite: creators_idrefppn oai_lastmod: 2019-01-23T12:34:24Z oai_set: tse site: ut1 citation: Magill, Michael , Quinzii, Martine and Rochet, Jean-Charles (2015) A Theory of the Stakeholder Corporation. Econometrica, 83 (5). pp. 1685-1725.