Advanced Search
MyIDEAS: Login to save this paper or follow this series

Rhineland exit?

Contents:

Author Info

  • Lans Bovenberg

    (CentER, Tilburg University, and Netspar)

  • Coen N. Teulings

    ()
    (CPB Netherlands Bureau for Economic Policy Analysis, and University of Amsterdam)

Abstract

We argue in favour of the shareholder model of the firm for three main reasons. First, serving multiple stakeholders leads to ill-defined property rights. What sounds like a fair compromise between stakeholders can easily evolve in a permanent struggle between the stakeholders about the ultimate goal of the company. In many cases, the vague Rhineland principles no longer offer much protection to workers. Second, giving workers a claim on the surplus of the firm raises the cost of capital for investments in jobs, which harms the position of job seekers, including new entrants to the labour market. Third, and most importantly, making shareholders the ultimate owner of the firm provides the best possible diversification of firm-specific risks. Whereas globalisation has increased firm-specific risk by intensifying competition, globalisation of capital markets has also greatly increased the scope for diversification of firm-specific risk. Diversification of this risk on the capital market is an efficient form of social insurance. Reducing the claims of workers on the surplus of the firm can be seen as the next step in the emancipation of workers. Workers derive their security not from the firm that employs them but from the value of their own human capital. In such a world, global trade in corporate control, global competition and creative destruction associated with these developments are more legitimate.Coordination in wage bargaining and collective norms on what is proper compensation play an important role in reducing the claim of workers on the firm’s surplus, thereby protecting workers against firm-specific risks. Indeed, in Denmark, workers bear less firm-specific risk than workers in the United States do. Collective action thus has an important role to play. Politicians, however, also face the temptation to please voters and incumbent workers with short-run gains at the expense of exposing workers to firm-specific risks and reducing job creation. This is why corporate governance legislation that gives moral legitimacy to the claim of insiders on the surplus of the firm is damaging.The transition from the Rhineland model (in which management serves the interests of all stakeholders) towards the shareholder model is fraught with difficulties. While society reaps long-run gains in efficiency, in the short run a generation of insiders has to give up their rights without benefiting from increased job creation and higher starting wages. Whereas the claims of older workers on the surplus of a firm may thus have some legitimacy, younger cohorts should be denied such moral claims. These problems require extreme political skill to solve. In particular, they may require some grandfathering provisions or temporary explicit transfers from younger to older generations. This discussion paper has resulted in a publication in the 'International Tax and Public Finance' , vol. 16(5), 710-26.

Download Info

If 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.
File URL: http://papers.tinbergen.nl/07101.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 07-101/3.

as in new window
Length:
Date of creation: 20 Dec 2007
Date of revision:
Handle: RePEc:dgr:uvatin:20070101

Contact details of provider:
Web page: http://www.tinbergen.nl

Related research

Keywords: wagesetting; optimal risk sharing; employment protection; corporate governance;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Kuhn, Peter & Robert, Jacques, 1989. "Seniority and Distribution in a Two-Worker Trade Union," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(3), pages 485-505, August.
  2. Costas Meghir & Luigi Pistaferri, 2004. "Income Variance Dynamics and Heterogeneity," Econometrica, Econometric Society, Econometric Society, vol. 72(1), pages 1-32, 01.
  3. Gibbons, R. & Katz, L.F., 1989. "Layoffs And Lemons," Working papers 531, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Gordon, R.H. & Bovenberg, A.L., 1994. "Why Is Capital So Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation," Working Papers, Research Seminar in International Economics, University of Michigan 358, Research Seminar in International Economics, University of Michigan.
  5. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  6. Andrei Shleifer & Lawrence H. Summers, 1987. "Breach of Trust in Hostile Takeovers," NBER Working Papers 2342, National Bureau of Economic Research, Inc.
  7. Topel, Robert H & Ward, Michael P, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(2), pages 439-79, May.
  8. Sebastian Buhai & Miguel Portela & Coenraad N. Teulings & Aico Van Vuuren, 2008. "Returns to Tenure or Seniority?," CESifo Working Paper Series 2381, CESifo Group Munich.
  9. John M. Abowd & David Card, 1986. "On the Covariance Structure of Earnings and Hours Changes," NBER Working Papers 1832, National Bureau of Economic Research, Inc.
  10. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  11. Raghuram G. Rajan, 2005. "Has financial development made the world riskier?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, issue Aug, pages 313-369.
  12. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June.
  13. Clark, Andrew E & Postel-Vinay, Fabien, 2005. "Job Security and Job Protection," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4927, C.E.P.R. Discussion Papers.
  14. Persson, Torsten & Roland , Gérard & Tabellini, Guido, 1997. "Comparative Politics and Public Finance," Seminar Papers, Stockholm University, Institute for International Economic Studies 633, Stockholm University, Institute for International Economic Studies.
  15. Anja Deelen & Egbert Jongen & Sabine Visser, 2006. "Employment protection legislation; lessons from theoretical and empirical studies for the Dutch case," CPB Document, CPB Netherlands Bureau for Economic Policy Analysis 135, CPB Netherlands Bureau for Economic Policy Analysis.
  16. Tirole, Jean, 1999. "Corporate Governance," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2086, C.E.P.R. Discussion Papers.
  17. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
  18. Teulings,Coen & Hartog,Joop, 2008. "Corporatism or Competition?," Cambridge Books, Cambridge University Press, number 9780521049399, 9.
  19. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  20. Kuhn, Peter, 1988. "A Nonuniform Pricing Model of Union Wages and Employment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(3), pages 473-508, June.
  21. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Does Employment Protection Reduce Productivity? Evidence From US States," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(521), pages 189-217, 06.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Coen Teulings, 2010. "How to Share Our Risks Efficiently? Principles for Optimal Social Insurance and Pension Provision," De Economist, Springer, Springer, vol. 158(1), pages 1-21, April.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:dgr:uvatin:20070101. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antoine Maartens (+31 626 - 160 892)).

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.