The foundations of multistakeholding: the problem of the costs of exclusion

Sacchetti, Silvia and Borzaga, Carlo (2017). The foundations of multistakeholding: the problem of the costs of exclusion. In: Euricse (European Research Institute on Cooperative and Social Enterprise) Workshop, 4-5 Dec 2017, Euricse, Trento, Italy.

Abstract

Henry Hansmann has argued that ownership is best allocated to the group of patrons for which the total of cost of governance and contracting for all the firm’s patrons combined is minimized. This paper re-founds Hansmann’s model by considering an additional set of costs, the costs of excluding certain groups of patrons from the firm’s decision-making or governance process. The objective, which is Coasean in both spirit and formulation, is to show (1) that firms with “multi-stakeholder governance” emerge to economize on exclusion costs, and (2) that the efficient governance structure minimizes the total cost of membership, contracting and exclusion costs for all the firm’s patrons combined. The paper argues that this setup helps explain so-called “public organisation,” defined as organisations with public interest objectives, and further claims that this model helps explaining the recent emergence of multi-stakeholder enterprises within the third sector.

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