Research Paper Number

20/2009

Shyam Sunder

Document Type

Article

Publication Date

2009

Keywords

extensive value; factor income distribution; surplus

Abstract

In the neoclassical model of the firm, value surplus of the firm is assumed to accrue to its owners. Contract model suggests a distribution of the surplus among various agents depending on the imperfections of the markets in which they transact with the firm. If the share of the surplus to an agent declines with the perfection of the market in which he transacts, shareholders should be expected to get only a small piece of the pie, violating the neoclassical assumption. The paper explores an extensive value concept and its measurement for firms. It also examines the implications of extensive value for what we do and do not know about the consequences of corporate mergers and acquisitions.

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