Conflict between Citizen Ownership and the Production of Public Goods

Abstract

The paper investigates the conditions under which consumer ownership should be preferred to investor ownership in economies with externalities. On making their choices investor-owners take into account producer surplus only, while consumer-owners take into account both producer and consumer surplus, whereby consumer-owned firms’ objectives are naturally aligned with those of society. Nonetheless, we find that pursuing consumers’ objectives may be socially less beneficial than pursuing investors’, when external effects of consumption are at work. For the dominance of investor ownership there is needed a conflict, in a sense that is made precise in the paper, between the community of consumers and external communities of citizens affected by the externality. This, however, is not by itself sufficient and there is also needed the existence of a common interest between investors and the external community of citizens.