William H. Meckling (1922 - May 15, 1998) was an American economist and professor of Management and Government Policy and Dean at the Simon Business School, University of Rochester, working in the areas of "managerial economics and the economic analysis of law, and his work received international recognition" (Source: Currents, 1998). This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the 'separation and control' issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears the costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. Michael C. Jensen and William H. Meckling. "Theory of the firm: Managerial behavior, agency costs and ownership structure." Journal of financial economics 3.4 (1976): 305-360. Abstract It is traditional in the theory of the firm to define the production opportunity set available to the firm in terms of its boundary -- the maximum attainable set of output quantities for various input quantities, given the state of technology and knowledge. This boundary is the production function of the firm. One of our purposes here is to point out the dependence of such production functions on the structure of property rights and contracting rights within which the firm exists. We redefine the production function in order to recognize the dependence of output on the structure of property and contracting rights. That expanded framework is then used to discuss a concrete set of problems surrounding the role of labor in the firm ranging from the 'labor-managed firm' system (in which tradable capital value residual claims [common stock] are legally prohibited), and the codetermination and industrial democracy movements (in which management participation by labor is required by law), to cooperatives and professional partnerships (i.e., quasi-labor-managed firms which arise out of the voluntary contracting process), and the capitalist corporation. Michael C. Jensen and William H. Meckling. "Rights and production functions: An application to labor-managed firms and codetermination." Journal of business (1979): 469-506. The corporation as an organizational form is an enormously productive social invention. Partly because of its success it is under increasing attack from various quarters, often under the guise of “protecting” investors from self-interested managers. Some of these attacks are successful simply because the corporation is a poorly understood entity. This paper discusses what the corporation is, what it is not, and how certain misconceptions about the corporate form are fostered by its critics as part of their attack. William H. Meckling and Michael C. Jensen, 'Reflections on the Corporation as a Social Invention,' in Controlling the Giant Corporation: A Symposium(Center for Research in Government Policy and Business, Graduate School of Management, University of Rochester, 1982 This paper analyzes the relations between knowledge, control and organizational structure both in the market system as a whole and in private organizations. Limitations on the mental capacity of the human mind and the costs of producing and transferring knowledge means that knowledge relevant to all decisions can never be collected in the mind of a single individual or a small body of experts. This means that if the knowledge valuable to a particular decision is to be used in making that decision, there must be a system for partitioning out decision rights to individuals who already have the relevant knowledge and abilities or who can acquire or produce them at the lowest cost. Self interest on the part of individual decision-makers means a control system is required to motivate individuals with the decision rights and the relevant knowledge to use those decision rights appropriately. This control problem is solved in a capitalist economy by a system of alienable property rights. Michael C. Jensen and William H. Meckling. "Specific and general knowledge and organizational structure." (1992). [William H. Meckling was] the consummate scholar who was constantly probing and questioning, and always stimulating each of us to produce the best work possible. He created an exciting, vibrant intellectual environment where each faculty member was encouraged to interact and create knowledge." Jerold L. Zimmerman, in: "Meckling, former Simon dean, dies," in Currents, University of Rochester, June 15, 1998. Wikipedia has an article about: William H. Meckling
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