2026 General Seminar no. 7 - Joshua Gans (Toronto)

Title: Endogenous Firm Ownership in General Equilibrium

by Joshua Gans

Abstract:  This paper examines firm ownership structures in competitive general equilibrium by introducing a model where ownership emerges endogenously rather than being assumed. By embedding the property rights theory of the firm into general equilibrium analysis, the model demonstrates how market forces determine both initial firm formation by entrepreneurs and subsequent trading of ownership rights. The key finding is that, in equilibrium, firms are created by managers who have long-term importance to performance, but these founder-managers nonetheless sell ownership to outside investors. This pattern emerges because managers can capture value through both the sale price and their ongoing employment relationship, while outside owners can only benefit through ownership. The model, thus, provides a novel theoretical foundation for observed patterns of entrepreneurial exit. Additionally, it identifies a distinct economic definition of an entrepreneur as an agent whose human capital is valuable for firms even when they do not remain long-term owners. The framework generates insights into firm formation, ownership dynamics, and the nature of entrepreneurship while maintaining the core structure of competitive general equilibrium analysis.