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Self-financing in Labor-managed Firms (LMFs): Individual Capital Accounts and Bonds

In: Cooperative Firms in Global Markets

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  • Ermanno C. Tortia

Abstract

The literature on labor-managed firms identifies the source of under-capitalization in the Furubotn–Pejovich effect. Appropriable capital accounts can counteract the horizon problem, but they engender little-examined problems connected with the distribution, reinvestment, and reimbursement of net surpluses. This paper proposes that the introduction of cooperative bonds would provide a better match between the horizons of members and their firms. However, bonds generate risks of their own due to capital variability, thus requiring the imposition of various constraints and the retention of appropriate levels of collective reserves. Finally, a hierarchy of liabilities is proposed to protect parties who undergo information disadvantages.

Suggested Citation

  • Ermanno C. Tortia, 2007. "Self-financing in Labor-managed Firms (LMFs): Individual Capital Accounts and Bonds," Advances in the Economic Analysis of Participatory & Labor-Managed Firms, in: Cooperative Firms in Global Markets, pages 233-261, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aeapzz:s0885-3339(06)10009-5
    DOI: 10.1016/S0885-3339(06)10009-5
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