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Paper #1020
Ownership, Residual Risk, and Accountability: Answering the Hansmann Objection
The paper answers Henry Hansmann's objection that Decision Accounting cannot change accountability because ownership determines residual risk-bearing. It shows that DA Field 17 changes the information environment, making system-welfare consequences visible and attributable, thereby creating accountability without changing ownership. Four formal propositions and a falsification condition are provided.
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Theorem status: evidence-traced claim under the cited paper's assumptionsFalsification: show the same game preserving system welfare without changing the payoff structure
KEY FINDINGS
THEOREM
Proposition 2 (Welfare-Cost Visibility Theorem): Under the standard incomplete contracts framework with non-contractible system welfare C, the introduction of a mandatory DA Field 17 requirement changes the equilibrium ownership-governance outcome from one in which system-welfare externalization is the dominant strategy to one in which system-welfare internalization is at least weakly dominant.
PLAIN ENGLISH
When decision-makers are required to specify the system-welfare costs of their decisions before acting, they begin to internalize those costs—not because they become altruistic, but because visibility creates reputational, regulatory, and legitimacy pressures.
EVIDENCE & LIMITATIONS
- Theorem status: evidence-traced claim under the cited paper's assumptions
- Falsification: show the same game preserving system welfare without changing the payoff structure
REFERENCES / CITATION STATUS
Reference counts for this manuscript have not been published yet. Treat its citations as unverified until a source list is available.
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EXECUTIVE SUMMARY
Henry Hansmann's theory of ownership holds that ownership structure determines who bears residual risk and therefore who is accountable for enterprise outcomes. On this view, a record field like DA Field 17 cannot change accountability because it does not change ownership. The paper answers that objection directly. It shows that the Hansmann framework treats the information environment as exogenous to ownership structure. In reality, the information environment is endogenous: the firm's information system is optimized for residual claimants, making system-welfare consequences invisible. DA Field 17 changes the information environment without changing ownership. It makes system-welfare consequences visible, auditable, and attributable. The paper proves four propositions: (1) residual control rights are information-dependent; (2) DA Field 17 shifts the equilibrium from systematic externalization to constrained internalization; (3) accountability can exist without residual risk transfer when consequences are visible; (4) the equilibrium shift is stable. A falsification condition is specified: if mandatory DA Field 17 disclosure produces no measurable change in ownership-governance decisions affecting system welfare over five years in a jurisdiction with functional legal institutions, the theory is falsified. The paper concludes that changing the information environment is a feasible third path between accepting externalization and restructuring ownership.
METHODOLOGY
The paper uses formal theoretical analysis, building on the incomplete contracts framework (Grossman-Hart, Hart-Moore) and the Hansmann theory of ownership. It presents four formal propositions with proofs, supported by 47 footnotes and 72 bibliographic entries. A falsification condition is specified for empirical testing.
SOURCE QUESTIONS
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WHY THIS MATTERS
For the economist
A structural claim about when bilateral optimization degrades the shared system. Read the formal statement and its stated axioms.
For the regulator
The constraint is physical or biological, so disclosure alone will not internalize it. The policy lever is to bound exposure, not to price it away.
For the executive
This is where a privately efficient decision can degrade the system the business depends on. The governance question is which decision records would make that system cost visible before it is normalized.
For the teacher
An on-site HTML deck and the expanded curriculum cover the argument, the evidence, and the measurement. Use the deck as a self-contained class session, then route deeper through the 45-50h core course or 100+h full curriculum.
For the affected community
In plain terms: who gains from the current arrangement, who pays for it, and what rule change would alter that split. The summary states each without jargon.
© 2026 Erik Postnieks · Independent Researcher · Salt Lake City