Firm ownership and macroeconomics of incentive leakages

Aksoy, Yunus and Daripa, Arup and Samiri, Issam (2025) Firm ownership and macroeconomics of incentive leakages. Working Paper. European Central Bank.

Abstract

Questions about market power have become salient in macroeconomics. We consider the role of institutional structures in addressing these within a dynamic general equilibrium framework. Standard models account for monopoly profits as a lump-sum transfer to the representative agent. We label this an ``incentive leakage,'' and show this to be a general characteristic of firm-optimal arrangements. We show that shareholder-operated or worker-operated firms that eliminate leakage can generate within-firm incentives that effectively reduce monopoly distortion in equilibrium. When all firms operate similarly, an additional general equilibrium effect arises through internalization of an aggregate demand externality. We characterize steady-state welfare across structures, and show how zero-leakage institutions lead to improvements towards the Golden Rule benchmark. Overall, our paper takes the first step towards an analysis of the macroeconomics of institutions without incentive leakage.

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