Private Benefits of Control and the Core

Abstract

This study aims to analyze the core in production economies with private benefits of control. We consider two types of shareholders in a firm: small shareholders and the controlling shareholder. Unlike small shareholders, the controlling shareholder's utility increases not only with the consumption of goods but also with private benefits related to the production level of the firm and his controlling power. We observe that the private benefits of control are allowed in the core only when the transferred utility from the controlling shareholder to small shareholders is higher than the small shareholders' utility loss from private benefits.