Works councils: an agency perspective
AbstractThis paper investigates the role of works councils in a simple agency framework in which works councils are supposed to monitor manager’s information on behalf of the workforce, but they are independent agents who might pursue their private interest. First, we consider that workers can incentivize works councils through contingent monetary payments. In order to deter collusion, workers must pay higher compensations in states of nature where they can be expropriated by potential coalitions among works councils and management. Collusion makes contingent payments costly and reduces workers’ payoffs. Second, when elections are the exclusive mechanisms to align works councils’ interest, only well compensated representatives would face an intertemporal tradeoff between accepting management’s transfers at first period and losing rents at the second period. Elections increase the cost of entering on collusive behavior with management and works councils will try to behave on the employees’ interest.
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Date of creation: 19 Nov 2012
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-06 (All new papers)
- NEP-CTA-2012-12-06 (Contract Theory & Applications)
- NEP-HRM-2012-12-06 (Human Capital & Human Resource Management)
- NEP-MIC-2012-12-06 (Microeconomics)
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