Should I Stay or Should I Go? Participation and Decision-Making in Family Firms

We explore the implications of altruism in family firms for the allocation of decision-making rights. Our results suggest that centralization occurs in a broader range of circumstances in family than in nonfamily firms, consistent with empirical evidence. We show that an agent might remain in a decentralized family firm even though he prefers centralization, and that an agent might remain in a centralized family firm even when it does not do the type of work the agent prefers. We relate our findings to the relative performance of family versus nonfamily firms, and to problems of succession.