the wheat or stock market as an individual, but we often make this error by thinking about organizations as if they were persons with motivations and intentions.14
1.6 OverviewofthePaper
We develop our theory in stages. Sections 2 and 4 provide analyses of the agency costs
of equity and debt respectively. These form the major foundation of the theory. In Section 3, we pose some questions regarding the existence of the corporate form of organization and examines the role of limited liability. Section 5 provides a synthesis of the basic concepts derived in sections 2-4 into a theory of the corporate ownership structure which takes account of the trade-offs available to the entrepreneur-manager between inside and outside equity and debt. Some qualifications and extensions of the analysis are discussed in section 6, and section 7 contains a brief summary and conclusions.