Organizational forms often serve as vehicles for the appropriation of quasi-rent. Capitalist firms typically emerge when production requires noncontractible investments in specific physical assets, because worker control would divert quasi-rents away from asset owners ex post. Conversely, labor-managed firms tend to emerge in niches requiring specialized human capital but general-purpose physical assets. A key result is that capitalist firms can persist in competitive markets even when labor-managed firms would yield a larger total surplus.

Large productivity gains have been observed in Chinese agriculture following the transition from collective farming to household contracting. Using a model of mutual monitoring in an egalitarian production team, we estimate that labor supervision absorbed about 10-20 percent of total labor time for a sample of Chinese agricultural teams during 1970-76. These agency costs are lower than comparable estimates derived from aggregate data.

Organizational forms often serve as vehicles for the appropriation of quasi-rent. Capitalist firms typically emerge when production requires noncontractible investments in specific physical assets because worker control would divert quasi-rents away from ass et owners ex post. Conversely, labor-managed firms tend to emerge in niches requiring specialized human capital but general-purpose physi cal assets. A key result is that capitalist firms can persist in competitive markets even when labor-managed firms would yield a larg er total surplus.

Hereditary economic inequality is unknown among mobile foragers, but hereditary class distinctions between elites and commoners exist in some sedentary foraging societies. With agriculture, such stratification tends to become more pronounced. We develop a model to explain the associations among productivity, population, property rights, and inequality. Using Malthusian dynamics, we show that regional productivity growth leads to enclosure of the best sites first, creating inequality between insiders and outsiders. Hereditary elite and commoner classes subsequently arise at the best sites. Food consumption becomes more unequal and commoners become poorer. These predictions are consistent with a wide range of archaeological evidence.

Large productivity gains have been observed in Chinese agriculture following the transition from collective farming to household contracting. Using a model of mutual monitoring in an egalitarian production team, we estimate that labor supervision absorbed about 10-20 percent of total labor time for a sample of Chinese agricultural teams during 1970-76. These agency costs are lower than comparable estimates derived from aggregate data.