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Does Employee Ownership Improve Incentives for Efforts

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Author Info

  • Chong-en Bai

    ()
    (Boston College)

  • Chenggang Xu

    (London School of Economics)

Abstract

This paper provides a theoretical framework to analyze workers' incentives under different ownership. It shows that the workers' effort and expected income are higher and the monitoring intensity is lower in the employee-owned firm than in the capitalist firm. Unlike in previous models, the advantage of employee ownership here does not depend on the size of the firm. It also shows that the advantage of employee ownership increases as workers' reservation wage decreases, the monitoring cost and productivity uncertainty increases. Finally, it discusses the relevance of the theory to employee stock-ownership program (ESOP) and profit sharing.

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File URL: http://fmwww.bc.edu/EC-P/wp303.pdf
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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 303..

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Length: 34 pages
Date of creation: Aug 1995
Date of revision:
Handle: RePEc:boc:bocoec:303

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Related research

Keywords: employee ownership; incentives; effort;

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References

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  1. Smith, Stephen C., 1995. "Employee participation in China's TVEs," China Economic Review, Elsevier, vol. 6(1), pages 157-167.
  2. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Putterman, Louis & Skillman, Gilbert L., 1992. "The role of exit costs in the theory of cooperative teams," Journal of Comparative Economics, Elsevier, vol. 16(4), pages 596-618, December.
  4. Dow, Gregory K, 1993. "Why Capital Hires Labor: A Bargaining Perspective," American Economic Review, American Economic Association, vol. 83(1), pages 118-34, March.
  5. Grossman, Sanford J & Hart, Oliver D, 1983. "Implicit Contracts under Asymmetric Information," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(3), pages 123-56, Supplemen.
  6. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Jensen, Michael C & Meckling, William H, 1979. "Rights and Production Functions: An Application to Labor-managed Firms and Codetermination," The Journal of Business, University of Chicago Press, vol. 52(4), pages 469-506, October.
  8. Bonin, John P & Jones, Derek C & Putterman, Louis, 1993. "Theoretical and Empirical Studies of Producer Cooperatives: Will Ever the Twain Meet?," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1290-320, September.
  9. Ben-ner, Avner, 1988. "The life cycle of worker-owned firms in market economies : A theoretical analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 10(3), pages 287-313, October.
  10. Oliver Hart & John Moore, 1996. "The Governance of Exchanges: Members' Co-operatives Versus Outside Ownership," STICERD - Theoretical Economics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE /1996/292, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  11. Hansmann, Henry, 1988. "Ownership of the Firm," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 4(2), pages 267-304, Fall.
  12. Jones, Derek C & Kato, Takao, 1995. "The Productivity Effects of Employee Stock-Ownership Plans and Bonuses: Evidence from Japanese Panel Data," American Economic Review, American Economic Association, vol. 85(3), pages 391-414, June.
  13. Meade, James E, 1972. "The Theory of Labour-Managed Firms and of Profit Sharing," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 82(325), pages 402-28, Supplemen.
  14. FitzRoy, Felix R & Kraft, Korenelius, 1987. "Cooperation, Productivity, and Profit Sharing," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(1), pages 23-35, February.
  15. Craig, Ben & Pencavel, John, 1992. "The Behavior of Worker Cooperatives: The Plywood Companies of the Pacific Northwest," American Economic Review, American Economic Association, vol. 82(5), pages 1083-105, December.
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Cited by:
  1. Sessions, John G., 2008. "Wages, supervision and sharing," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 48(4), pages 653-672, November.

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