Internal Rent Seeking, Works Councils, and Optimal Establishment Size
AbstractUsing a microeconomic model and data from the Establishment Panel of the German Institute for Employment Research, we analyze the optimal establishment size against the background of rent-seeking workers and the influence of works councils. The theoretical part shows that establishment size has a discouragement effect on the level of individual rent seeking but also a quantity effect as the number of rent seekers increases.� The interplay of both effects – together with� technological considerations – determines whether the employer chooses an inefficiently small or large establishment size. Introduction� of a works council restores efficient� establishment size although it is purely used as rent-seeking� device. Whether the employer benefits from a works council or not, depends on the� degree of contract incompleteness and the degree of worker coordination via a works council. The empirical part indicates dominance of the discouragement effect over the quantity effect in establishments without works council. As theoretically predicted, works councils are beneficial by disentangling rent-seeking and production issues,� thus eliminating the influence of the two� rent-seeking effects.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Faculty of Business and Economics - University of Basel in its series Working papers with number 2011/14.
Date of creation: 2011
Date of revision:
establishment size; rent-seeking; works council;
Other versions of this item:
- Beckmann, Michael & Kräkel, Matthias, 2012. "Internal rent seeking, works councils, and optimal establishment size," European Economic Review, Elsevier, vol. 56(4), pages 711-726.
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
- J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
- J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael Lokshin & Zurab Sajaia, 2004. "Maximum likelihood estimation of endogenous switching regression models," Stata Journal, StataCorp LP, vol. 4(3), pages 282-289, September.
- Fitzenberger, Bernd & Kohn, Karsten & Wang, Qingwei, 2006.
"The Erosion of Union Membership in Germany: Determinants, Densities, Decompositions,"
IZA Discussion Papers
2193, Institute for the Study of Labor (IZA).
- Bernd Fitzenberger & Karsten Kohn & Qingwei Wang, 2011. "The erosion of union membership in Germany: determinants, densities, decompositions," Journal of Population Economics, Springer, vol. 24(1), pages 141-165, January.
- Fitzenberger, Bernd & Kohn, Karsten & Wang, Qingwei, 2006. "The Erosion of Union Membership in Germany: Determinants, Densities, Decompositions," ZEW Discussion Papers 06-66, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
- Richard B. Freeman & Edward P. Lazear, 1995.
"An Economic Analysis of Works Councils,"
in: Works Councils: Consultation, Representation, and Cooperation in Industrial Relations, pages 27-52
National Bureau of Economic Research, Inc.
- Nti, Kofi O, 1997. "Comparative Statics of Contests and Rent-Seeking Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 43-59, February.
- Warneryd, Karl, 2001. "Replicating contests," Economics Letters, Elsevier, vol. 71(3), pages 323-327, June.
- John Addison & Stanley Siebert & Joachim Wagner & Xiangdong Wei, 2000. "Worker Participation and Firm Performance: Evidence from Germany and Britain," British Journal of Industrial Relations, London School of Economics, vol. 38(1), pages 7-48, 03.
- Joel Rogers & Wolfgang Streeck, 1995. "Works Councils: Consultation, Representation, and Cooperation in Industrial Relations," NBER Books, National Bureau of Economic Research, Inc, number roge95-1, May.
- Lokshin, Michael & Beegle, Kathleen, 2006. "Forgone earnings from smoking : evidence for a developing country," Policy Research Working Paper Series 4018, The World Bank.
- Inderst, Roman & Muller, Holger M. & Warneryd, Karl, 2007.
"Distributional conflict in organizations,"
European Economic Review,
Elsevier, vol. 51(2), pages 385-402, February.
- Hirsch, Barry T., 1990. "Market structure, union rent seeking, and firm profitability," Economics Letters, Elsevier, vol. 32(1), pages 75-79, January.
- Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
- Konrad, Kai A., 2001.
"Investment in the absence of property rights: the role of incumbency advantages,"
Discussion Papers, Research Unit: Market Processes and Governance
FS IV 01-18, Social Science Research Center Berlin (WZB).
- Konrad, Kai A., 2002. "Investment in the absence of property rights; the role of incumbency advantages," European Economic Review, Elsevier, vol. 46(8), pages 1521-1537, September.
- Kai A. Konrad, 2002. "Investment in the Absence of Property Rights: The Role of Incumbency Advantages," CESifo Working Paper Series 698, CESifo Group Munich.
- Konrad, Kai A, 2001. "Investment in the Absence of Property Rights: The Role of Incumbency Advantages," CEPR Discussion Papers 3050, C.E.P.R. Discussion Papers.
- Lindbeck, Assar & Snower, Dennis J., 1986.
"Efficiency Wages Versus Insiders and Outsiders,"
CEPR Discussion Papers
133, C.E.P.R. Discussion Papers.
- Stergios Skaperdas, 1996.
"Contest success functions (*),"
Springer, vol. 7(2), pages 283-290.
- John T. Addison & Thorsten Schank & Claus Schnabel & Joachim Wagner, 2005.
"Works Councils in the Production Process,"
GEMF Working Papers
2005-12, GEMF - Faculdade de Economia, Universidade de Coimbra.
- John T. Addison & Thorsten Schank & Claus Schnabel & Joachim Wagner, 2006. "Works Councils in the Production Process," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 126(2), pages 251-283.
- Awudu Abdulai & Hendrik Tietje, 2007. "Estimating technical efficiency under unobserved heterogeneity with stochastic frontier models: application to northern German dairy farms," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 34(3), pages 393-416, September.
- Konrad, Kai A., 2004.
"Bidding in hierarchies,"
European Economic Review,
Elsevier, vol. 48(6), pages 1301-1308, December.
- Konrad, Kai A., 2003. "Bidding in hierarchies," Discussion Papers, Research Unit: Market Processes and Governance SP II 2003-27, Social Science Research Center Berlin (WZB).
- Fitzroy, Felix R & Kraft, Kornelius, 1987. "Efficiency and Internal Organization: Works Councils in West German Firms," Economica, London School of Economics and Political Science, vol. 54(216), pages 493-504, November.
- Matthias Kräkel, 2008. "On Adverse Selection of Technologies," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(2), pages 343-355, June.
- Zwick, Thomas, 2004. "Employee participation and productivity," Labour Economics, Elsevier, vol. 11(6), pages 715-740, December.
- Michael Beckmann & Silvia Föhr & Matthias Kräkel, 2010. "Rent Seeking, Employment Security, and Works Councils: Theory and Evidence for Germany," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(1), pages 2-40, January.
- Sandra E. Black & Lisa M. Lynch, 2001.
"How To Compete: The Impact Of Workplace Practices And Information Technology On Productivity,"
The Review of Economics and Statistics,
MIT Press, vol. 83(3), pages 434-445, August.
- S. Black & L. Lynch, 1997. "How to compete: the impact of workplace practices and information technology on productivity," LSE Research Online Documents on Economics 20298, London School of Economics and Political Science, LSE Library.
- S Black & L Lynch, 1997. "How to Compete: The Impact of Workplace Practices and Information Technology on Productivity," CEP Discussion Papers dp0376, Centre for Economic Performance, LSE.
- Sandra E. Black & Lisa M. Lynch, 1997. "How to Compete: The Impact of Workplace Practices and Information Technology on Productivity," NBER Working Papers 6120, National Bureau of Economic Research, Inc.
- Lisa M Lynch & Sandra E Black, 2002. "How to Compete: The Impact of Workplace Practices and Information Technology on Productivity," Working Papers 02-04, Center for Economic Studies, U.S. Census Bureau.
- Addison, John T & Schnabel, Claus & Wagner, Joachim, 2001. "Work Councils in Germany: Their Effects on Establishment Performance," Oxford Economic Papers, Oxford University Press, vol. 53(4), pages 659-94, October.
- Derik Burgert, 2006. "The Impact of German Job Protection Legislation on Job Creation in Small Establishments," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 52(2), pages 123-139.
- Kornelius Kraft & Julia Lang, 2008. "The Causes and Consequences of Adopting a Works Council," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(5+6), pages 512-532, December.
- Lindbeck, Assar & Snower, Dennis J, 1988.
"Cooperation, Harassment, and Involuntary Unemployment: An Insider-Outsider Approach,"
American Economic Review,
American Economic Association, vol. 78(1), pages 167-88, March.
- Lindbeck, Assar & Snower, Dennis J., 1987. "Cooperation, Harassment, and Involuntary Unemployment: An Insider-Outsider Approach," CEPR Discussion Papers 196, C.E.P.R. Discussion Papers.
- Bengt Holmstrom & John Roberts, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall.
- repec:iab:iabzaf:v:41:i:2/3:p:305-326 is not listed on IDEAS
- Verick, Sher, 2004. "Threshold Effects of Dismissal Protection Legislation in Germany," IZA Discussion Papers 991, Institute for the Study of Labor (IZA).
- Thomas Zwick, 2005. "Continuing Vocational Training Forms and Establishment Productivity in Germany," German Economic Review, Verein für Socialpolitik, vol. 6(2), pages 155-184, 05.
- Uwe Jirjahn, 2009. "The Introduction of Works Councils in German Establishments - Rent Seeking or Rent Protection?," British Journal of Industrial Relations, London School of Economics, vol. 47(3), pages 521-545, 09.
- Uwe Cantner & Wolfgang Gerstlberger & Ipsita Roy, 2014. "Works Councils, Training Activities and Innovation: A Study of German Firms," Jena Economic Research Papers 2014-006, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- Brändle, Tobias & Baumann, Florian, 2013. "Union Bargaining and Intra-Industry Productivity Differentials: Theory and Evidence from Germany," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79852, Verein für Socialpolitik / German Economic Association.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (WWZ).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.