| Abstract: | We develop a tractable model of the allocation of ownership and control within firms operating in competitive markets. The model permits analysis of how the scarcity of assets in the market translates into ownership structures inside the organization. It identifies a price‐like mechanism whereby local liquidity or productivity shocks propagate and lead to widespread organizational restructuring. Firms will be more integrated when the terms of trade are more favorable to the short side of the market, when liquidity is unequally distributed among existing firms, and following a uniform increase in productivity. Shocks to the first two moments of the liquidity distribution have multiplier effects on the corresponding moments of the distribution of ownership structures. (JEL: D21, D31, D51, D86) |
