Article | Journal of Law, Economics & Organization | 2010

Disagreement and the Allocation of Control

by Eric J. Van den Steen

Abstract

This article studies the allocation of control when there is disagreement—in the sense of differing priors—about the right course of action. People then value control rights since they believe that their decisions are better than those of others. More disagreement (due to, e.g., fundamental uncertainty) increases the value that players attach to control. The article shows that all income and control of a project should then be concentrated in one hand: income rights should go more to people with more control since such people value income higher (because they have a higher opinion of the decisions made); control rights should go more to people with more income since they care more (and believe that they make better decisions). Different projects may be optimally "owned" by different people. Furthermore—with residual income exogenously allocated—complementary decisions should be more co-located, whereas substitute decisions should be more distributed. Confident people with a lot at stake should—in a wide range of settings—get more control.

Keywords: Governance Controls; Projects; Decisions; Value; Agreements and Arrangements;

Citation:

Van den Steen, Eric J. "Disagreement and the Allocation of Control." Journal of Law, Economics & Organization 26, no. 2 (2010): 385–426. (Advance Access published online on December 3, 2008.)