Ownership and competitive dynamics

Abstract

Changes in ownership titles are essential to understanding crucial aspects of competitive dynamics and, more broadly, the market process. There is ample evidence that a crucial source of productivity growth, and hence welfare, is due to the reallocation of inputs and outputs from less to the more productive firms. Furthermore, ownership is essential in stimulating and shaping this reallocation process. However, most economists fail to explicitly bring in ownership as a relevant analytical category in discussions of such dynamic processes. We argue that a primary role of ownership in an economy is to supply fuel and precision to this reallocation process, as argued by Austrian economists, most notably Ludwig von Mises. Part of the economic function of ownership is that it eases entrepreneurial speculative activities and provides an incentive to engage in such activities.