wOwners are those persons
who share two formal rights: the right
to control the firm and the right to
appropriate the firm’s residual
earnings.
nFormal not de facto
rights.
nIt is often efficient to assign the formal right of control to persons who are not in a position to exercise that right very effectively.
lBecause giving those rights
to
others would create worse incentives.
lFor example: why managers
don’t
have formal ownership rights.
