Models of corporate behavior normally assume that a firm acts in the interest of shareholders,
and that shareholders care only about the returns they receive on the shares they
own in that firm. But shareholders should also care about the effects of a manager's
decisions on the value of shares they own in other firms, on the price they pay as consumers
of the firm's output, on the value of the firm's bonds they own, on government
tax revenue which finances public expenditures benefiting shareholders, etc. These effects
are normally presumed to be of second order. This paper reexamines this presumption,
argues that many of these effects are likely to be important, and examines how a variety
of conventional conclusions about corporate behavior change as a result.
*Published:
Roger Gordon, 2003. "Do Publicly Traded Corporations Act in the Public Interest?," Advances in Economic Analysis & Policy, Berkeley Electronic Press, vol. 3(1), pages 1013-1013.
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