Ownership and its components

The production of goods and services commonly requires a large variety of inputs, including financial resources, risk-bearing services, and decision making. Decision making is a necessary input because production takes place in real time, and relevant events, such as mechanical failures, technical innovations, or changes in market conditions, cannot be foreseen when agreements to undertake production are initiated. Financial inputs are required because it is usually worthwhile to employ techniques entailing a lag between the investment of resources and the completion of saleable products. Risk bearing is required when the realizable value of the products cannot be known with certainty at the time that costly effort, materials, and services of capital goods are used up.

In most business firms, decision-making rights are held by persons who are also financial risk bearers and suppliers of funds. The holders of these rights are known as the owners of the firm. Ownership refers to a bundle of rights that an economic agent is entitled to exercise over an asset. Its main components are the right of utilization, the right to the products of the asset, and the right to alienate or dispose of the asset and of these rights of utilization and return (Montias, 1976, p. 116; Ryan, 1987, p. 1029). The firm as an ownable asset is an entity that acts as a legal agent in the marketplace, entering into contractual agreements with other agents in order to produce and sell goods and services.