This is the first of three chapters dealing with appropriation problems. The general idea is that members of labor-managed firms may have trouble appropriating the full value of membership to an outsider who joins the firm. Chapter 9 constructs a model that incorporates the hypothesis of profit maximization and the hypothesis of per capita income maximization as special cases. This model can account for the empirical observation that LMFs have lower supply and demand elasticities than conventional firms. The asymmetries between expansion and contraction of the LMF are discussed, and it is shown that LMFs can 'degenerate' into capitalist firms due to imperfect appropriation in LMF membership markets. Finally, the chapter shows that appropriation problems can lead to an economy dominated by capitalist firms even when LMFs generate more total surplus. The chapter closes with a sketch of the reasons why LMFs may suffer from imperfect appropriation. In particular, the inalienability of labor can lead to problems of adverse selection, non-competitiveness, and illiquidity that do not usually arise for conventional firms.