Economic Theory Commons^™

Voice Without Say: Why Capital-Managed Firms Aren’T (Genuinely) Participatory, Justin Schwartz

Justin Schwartz

Why are most capitalist enterprises of any size organized as authoritarian bureaucracies rather than incorporating genuine employee participation that would give the workers real authority? Even firms with employee participation programs leave virtually all decision-making power in the hands of management. The standard answer is that hierarchy is more economically efficient than any sort of genuine participation, so that participatory firms would be less productive and lose out to more traditional competitors. This answer is indefensible. After surveying the history, legal status, and varieties of employee participation, I examine and reject as question-begging the argument that the rarity of genuine …

A Theory Without A Movement, A Hope Without A Name: The Future Of Marxism In A Post-Marxist World, Justin Schwartz

Justin Schwartz

Just as Marx's insights into capitalism have been most strikingly vindicated by the rise of neoliberalism and the near-collapse of the world economy, Marxism as social movement has become bereft of support. Is there any point in people who find Marx's analysis useful in clinging to the term "Marxism" - which Marx himself rejected -- at time when self-identified Marxist organizations and societies have collapsed or renounced the identification, and Marxism own working class constituency rejects the term? I set aside bad reasons to give on "Marxism," such as that the theory is purportedly refuted, that its adoption leads necessarily …

The Role Of The Law In The Availability Of Public Transit And Affordable Housing In Atlanta’S West End, Elliott Lipinsky

ELLIOTT LIPINSKY

The Federal Transit Administration (FTA) is a branch of the U.S. Department of Transportation that administers federal funds and provides technical assistance for the support of locally operated public transit systems. MARTA / Atlanta metro area are part of FTA Region IV (the Southeast). FTA would be involved, for instance, in financing the federal grant monies discussed above. But actual regulation of operations (i.e., what MARTA does each day, or what MARTA will plan to do regionally) is more closely regulated by Georgia agencies.

Until recently, the Atlanta metropolitan area had no powerful central agency to coordinate regional transit. The …

Collective Choice, Justin Schwartz

Justin Schwartz

This short nontechnical article reviews the Arrow Impossibility Theorem and its implications for rational democratic decisionmaking. In the 1950s, economist Kenneth J. Arrow proved that no method for producing a unique social choice involving at least three choices and three actors could satisfy four seemingly obvious constraints that are practically constitutive of democratic decisionmaking. Any such method must violate such a constraint and risks leading to disturbingly irrational results such and Condorcet cycling. I explain the theorem in plain, nonmathematical language, and discuss the history, range, and prospects of avoiding what seems like a fundamental theoretical challenge to the possibility …

Patent Examination Policy And The Social Costs Of Examiner Allowance And Rejection Errors, Ron D. Katznelson

Ron D. Katznelson

No abstract provided.

There Should Be Little Or No Liquidity Discounts For Controlling Interests In Closely Held Businesses, Michael Sack Elmaleh

Michael Sack Elmaleh

The application of liquidity discounts to the appraised values of controlling interests in closely held businesses reflects a failure of the valuation community to fully appreciate the fact that these equity interests belong to a fundamentally different investment class than publicly traded securities. Investors in publicly traded securities have dramatically different expectations about the benefits and sacrifices of such investments, compared to the expectations of benefits and sacrifices of investors in closely held companies. Investors in publicly traded securities expect their minority interest investments to be highly liquid, yield free cash flow, and require no participation in the management of …

Investing In A Better Job, Michael Sack Elmaleh

Michael Sack Elmaleh

Investing time and money to attain "something" that allows a person to earn more in future wages is economically rational, if the present value of the additional future wages exceeds the present value of the investment cost in time and money to attain that "something". In our market economy, these attained "somethings" include college degrees, vocational and professional certifications, and equity ownership in small closely held businesses. Most small closely held businesses require the full time active management of the owner. Little or no free cash flow would be available to the investor if they chose to hire a non …

What Do The Ibbottson Historical Studies Really Prove About Firm Size, Risk And Return?, Michael Sack Elmaleh

Michael Sack Elmaleh

I deny that the Ibbottson historical studies prove that small and medium caps outperform large caps because they are more risky. First, I question whether covariance measures are necessarily a good proxy for risk. The higher levels of volatility associated with small and medium cap versus large cap may be a statistical artifact: the greater number of transactions associated with large caps as compared to small caps may account for this difference. Secondly, higher returns on small and medium caps may be a function of less efficient information distribution for these securities as compared to large caps. Finally, can we …

The Relativity Of Risk Assessments In Investment Decisions, Michael Sack Elmaleh

Michael Sack Elmaleh

The level of risk in investing in a closely held firm is related to the qualifications of the control managing investor. While there is generally a minimum threshold of expertise and capital that a control investor must possess, beyond this threshold the potential levels of expertise and capital can vary significantly. The level of enterprise risk is inversely related to the level of expertise and capital possessed by the control investor. The more resources and expertise the investor possesses, the less the operational risk. Thus enterprise risk is a relative and not an inherent fixed property of an enterprise. Furthermore, …

The Income Method Of Valuation: A False Analogy Between Bonds And Stocks, Michael Sack Elmaleh

Michael Sack Elmaleh

The discounting of future income streams by a risk adjusted rate of return by proponents of the income method reflects a misplaced faith in the ability to project accurately future income streams and pick out the “right” rate of return. Future income streams are fairly reliably predictable when analyzing a debt instrument. However, equity investment future income streams are notoriously unpredictable. Similarly assessing the risk associated with realizing returns from a fixed security is comparatively easy in comparison with assessing the risks associated with equity returns. The widely used Beta has not proved to be a very stable measure of …

Do Investors Demand Higher Rates Of Return On Risky Investments In Closely Held Small Businesses?, Michael Sack Elmaleh

Michael Sack Elmaleh

Investors in small closely held firms often are oblivious to risk if the rewards are perceived to be sufficiently high. Risk may also be ignored because such investors seek more than just increased cash flow. These investors often seek higher order psychological returns such as job challenge and status.

The Role Of Valuation Specialists: Telling It Like It Is Or Telling It Like It Ought To Be, Michael Sack Elmaleh

Michael Sack Elmaleh

While the buying and selling of businesses based on formulas may not be the soundest method of pricing a business the more rigorous methods do not always provide the best guidance either. Ideally prospective buyers should have knowledge of both formula methods and the more rigorous approaches.

In Defence Of Exploitation, Justin Schwartz

Justin Schwartz

The concept of exploitation is thought to be central to Marx's Critique of capitalism. John Roemer, an analytical (then-) Marxist economist now at Yale, attacked this idea in a series of papers and books in the 1970s-1990s, arguing that Marxists should be concerned with inequality rather than exploitation -- with distribution rather than production, precisely the opposite of what Marx urged in The Critique of the Gotha Progam.

This paper expounds and criticizes Roemer's objections and his alternative inequality based theory of exploitation, while accepting some of his criticisms. It may be viewed as a companion paper to my What's …

Functional Explanation And Metaphysical Individualism, Justin Schwartz

Justin Schwartz

A number of (present or former) analytical Marxists, such as Jon Elster, have argued that functional explanation has almost no place in the social sciences. (Although the discussion is framed in terms of a debate among analytical Marxists, the point is quite general, and Marxism is used for illustrative purposes.) Functional explanation accounts for what is to be explained by reference to its function; thus, sighted organism have eyes because eyes enable them to see. Elster and other critics of functional explanation argue that this pattern of explanation is inconsistent with "methodological individualism," the idea, as they understand it, that …