Asymmetric Information and the Form of Enterprise: Capitalist Firms and Consumer Cooperatives

This paper examines the implication of different enterprise forms – capitalist firm and consumer cooperative – for the level of accident risks, assuming informational asymmetry between the firm and the outside trader. Our conclusion is that, in order to reduce accident risks, we should choose an enterprise form that gives the firm's management rights to those who would incur the most substantial loss in case of an accident. This result depends upon how effectively the mechanism of signaling works under the firms, given a certain distribution of expected losses over individuals.