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Why are Worker Cooperatives So Rare?

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Author Info
Michael Kremer

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Abstract

This paper argues that worker cooperatives are prone to redistribution among members, and that this redistribution distorts incentives. I assume that employment contracts are incomplete. In the model cooperative members pay in a capital contribution to purchase equipment. They then receive shocks to ability. Each worker's (observable) output depends on ability and on effort, neither of which can be observed separately. After ability is realized, members vote on a wage schedule as a function of output. If the median member has less than average ability, the cooperative will vote for a redistributive schedule, dulling incentives. Whereas workers in firms owned by outside shareholders would quit if the firm redistributed away from them, cooperative members will be reluctant to leave, since this entails forfeiting the dividends on their capital contribution. The model can explain why cooperatives typically have egalitarian wage policies.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6118.

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Date of creation: Jul 1997
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Handle: RePEc:nbr:nberwo:6118

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms

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  1. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December. [Downloadable!] (restricted)
  2. Kevin Lang & Peter-John Gordon, 1995. "Partnerships as Insurance Devices: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 614-629, Winter. [Downloadable!] (restricted)
  3. Benham, Lee & Keefer, Philip, 1991. "Voting in Firms: The Role of Agenda Control, Size and Voter Homogeneity," Economic Inquiry, Oxford University Press, vol. 29(4), pages 706-19, October.
  4. Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," Harvard Institute of Economic Research Working Papers 1816, Harvard - Institute of Economic Research.
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  5. 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. [Downloadable!] (restricted)
  6. Legros, Patrick & Newman, Andrew F., 1996. "Wealth Effects, Distribution, and the Theory of Organization," Journal of Economic Theory, Elsevier, vol. 70(2), pages 312-341, August. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
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(explanations, 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.)

  1. Carmen Bevi? & Luis C. Corch?n, 2006. "Rational Sabotage in Cooperative Production with Heterogeneous Agents," UFAE and IAE Working Papers 663.06, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
    Other versions:
  2. Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," NBER Working Papers 6421, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Daron Acemoglu & Michael Kremer & Atif Mian, 2003. "Incentives in Markets, Firms and Governments," NBER Working Papers 9802, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Louis Putterman, 2006. "Labor-Managed Firms," Working Papers 2006-18, Brown University, Department of Economics. [Downloadable!]
  5. Edward L. Glaeser & Andrei Shleifer, 1998. "Not-For-Profit Entrepreneurs," NBER Working Papers 6810, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Stefan Grosse & Louis Putterman & Bettina Rockenbach, 2007. "Monitoring In Teams: A Model and Experiment on the Central Monitor Hypothesis," Working Papers 2007-4, Brown University, Department of Economics. [Downloadable!]
  7. Alberto Bacchiega & Gianni De Fraja, . "Constitutional Design and Investment in Cooperatives and Investor-Owned Enterprises," Discussion Papers 99/5, Department of Economics, University of York. [Downloadable!]
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  8. Cuccia, Tiziana & Cellini, Roberto, 2007. "Workers' enterprises in the case of arts production," MPRA Paper 5192, University Library of Munich, Germany. [Downloadable!]
  9. repec:sfu:sfudps:dp00-03 is not listed on IDEAS
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  10. Rey, Patrick & Tirole, Jean, 2007. "Financing and Access in Cooperatives," IDEI Working Papers 404, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
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