Volume 13, Number 2 (Summer 2010)
Changes in ownership titles are essential to understanding competitive dynamics and, more broadly, the market process. There is ample evidence that a crucial source of productivity growth, and hence well-being, 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. 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 experimentation and provides an incentive to engage in such activities. These activities can be carried out with varying degrees of competence; in other words, “ownership competence” is unevenly distributed across entrepreneurs. As Mises recognized, the unhampered market process is required to sort among the entrepreneurial embodiments of such ownership competence.
