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Ownership, Incentives and Monitoring

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  • Chong-En Bai
  • Chenggang Xu

Abstract

This paper studies the effect of ownership structure on workers' incentives for investing in firm-specific human capital. Particularly, we analyse such incentivers and monitoring under employee ownership and capitalist ownership. In our model, the employee-owned firm is a firm bought by its workers who pay the competitive price. Under certain conditions, we show that the workers' investment and expected income are higher and the monitoring intensity is lower in an employee-owned firm than they are in a capitalist firm. We also show that the incentive effect of employee ownership increases as a worker's reservation wage decreases, as the monitoring cost or as the productivity uncertainty increases. Most of our results are consistent with the available empirical evidence

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File URL: http://sticerd.lse.ac.uk/dps/te/te413.pdf
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Bibliographic Info

Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Theoretical Economics Paper Series with number 413.

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Date of creation: Mar 2001
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Handle: RePEc:cep:stitep:413

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

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Keywords: Employee ownership; monitoring; incentives; property rights;

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