Monitoring the Monitor: Does Ownership Matter?

Yijiang Wang

One of the most intriguing and influential questions in organizational theory is “who monitors the monitor?” A theory of ownership is proposed by Alchian and Demsetz in answer to this question. In this paper, a model of successive monitoring is constructed to show that, when it is feasible for a capitalist owner to overcome free riding in a team through monitoring, it is equally feasible for the workers as owners to do so with an outcome-based incentive for the monitor at the top. Thus the answer to the question ”who monitors the monitor” has no specific implications for ownership, capitalist or labor. While ownership is neutral in affecting the feasibility of monitoring, it is generally not so in affecting income distribution and other design variables in the organization.

Key Words: Ownership.
JEL Classification Numbers: D21, D23.