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

Employer moral hazard, wage rigidity and worker cooperatives: A theoretical appraisal

Contents:

Author Info

  • Navarra, Cecilia

    ()
    (University of Namur)

  • Tortia, Ermanno

    ()
    (University of Trento)

Abstract

We argue that in a capitalist enterprise the need to fix wages is crucially influenced by the asymmetric distribution of decision-making power, which can entail the use of private information and authority in favour of the strongest contractual party (the employer), and against the weaker contractual party (the employee). The capitalist entrepreneur can take decisions whose negative consequences are borne by workers in terms of lower wages and more intensive work-pace. Excessive wage reductions in the face of negative exogenous shocks, and of too risky investment decision represent the main instances of such opportunistic behaviour. Fixed wages can be thought as workers’ best response to the emerging risk of the employers’ moral hazard, but this implies a heightened risk of lay-off since wages and employment levels cannot be fixed at one and the same time. As a counterexample, we observe worker cooperatives, which depart from the framework of the interaction between a principal and an agent in the presence of contrasting interests and private information. Indeed, several empirical studies show greater employment stability and wage flexibility in worker cooperatives vis à vis capitalist firms.

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://www.aiccon.it/file/convdoc/wp117.pdf
File Function: Full text
Download Restriction: no

Bibliographic Info

Paper provided by Associazione Italiana per la Cultura della Cooperazione e del Non Profit in its series AICCON Working Papers with number 117-2013.

as in new window
Length: 29 pages
Date of creation: 01 Feb 2013
Date of revision:
Handle: RePEc:ris:aiccon:2013_117

Contact details of provider:
Postal: P.le della Vittoria, 15 - 47100 Forlì, Italy
Phone: +39 0543 62327
Fax: +39 0543 374676
Email:
Web page: http://www.aiccon.it/
More information through EDIRC

Related research

Keywords: employment contract; wage rigidity; risk aversion; moral hazard; worker cooperative;

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. John Pencavel & Luigi Pistaferri & Fabiano Schivardi, 2006. "Wages, employment, and capital in capitalist and worker-owned firms," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 60(1), pages 23-44, October.
  2. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
  3. Michael Jensen, 2001. "Value Maximisation, Stakeholder Theory, and the Corporate Objective Function," European Financial Management, European Financial Management Association, vol. 7(3), pages 297-317.
  4. Meade, James E, 1972. "The Theory of Labour-Managed Firms and of Profit Sharing," Economic Journal, Royal Economic Society, vol. 82(325), pages 402-28, Supplemen.
  5. Pencavel, John & Craig, Ben, 1994. "The Empirical Performance of Orthodox Models of the Firm: Conventional Firms and Worker Cooperatives," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 718-44, August.
  6. Edward P. Lazear, 1996. "Performance Pay and Productivity," NBER Working Papers 5672, National Bureau of Economic Research, Inc.
  7. Fehr, Ernst & Schmidt, Klaus M., 2004. "Fairness and Incentives in a Multi-Task Principal-Agent Model," Discussion Papers in Economics 335, University of Munich, Department of Economics.
  8. Hansmann, Henry, 1988. "Ownership of the Firm," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(2), pages 267-304, Fall.
  9. Dow, Gregory K., 1987. "The function of authority in transaction cost economics," Journal of Economic Behavior & Organization, Elsevier, vol. 8(1), pages 13-38, March.
  10. Pagano, Ugo, 1991. "Property Rights, Asset Specificity, and the Division of Labour under Alternative Capitalist Relations," Cambridge Journal of Economics, Oxford University Press, vol. 15(3), pages 315-42, September.
  11. Alan S. Blinder & Don H. Choi, 1989. "A Shred of Evidence on Theories of Wage Stickiness," NBER Working Papers 3105, National Bureau of Economic Research, Inc.
  12. Dow,Gregory K., 2003. "Governing the Firm," Cambridge Books, Cambridge University Press, number 9780521522212, April.
  13. Björn Bartling & Ernst Fehr & Klaus M. Schmidt, 2010. "Screening, Competition, and Job Design: Economic Origins of Good Jobs," SOEPpapers on Multidisciplinary Panel Data Research 263, DIW Berlin, The German Socio-Economic Panel (SOEP).
  14. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  15. Robert Gibbons, 1986. "Piece-Rate Incentive Schemes," Working papers 424, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  17. Hajime Miyazaki & Hugh M. Neary, 1983. "The Illyrian Firm Revisited," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 259-270, Spring.
  18. Bruno S. Frey & Margit Osterloh, 2005. "Yes, Managers Should Be Paid Like Bureaucrats," CESifo Working Paper Series 1379, CESifo Group Munich.
  19. Edward P. Lazear & Kathryn L. Shaw, 2007. "Personnel Economics: The Economist's View of Human Resources," NBER Working Papers 13653, National Bureau of Economic Research, Inc.
  20. Robert E. Hall, 1980. "Employment Fluctuations and Wage Rigidity," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 91-142.
  21. Dohmen Thomas & Falk Armin, 2010. "Performance Pay and Multi-dimensional Sorting - Productivity, Preferences and Gender," ROA Research Memorandum 003, Maastricht University, Research Centre for Education and the Labour Market (ROA).
  22. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  23. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  24. D. Joseph Stiglitz, 2009. "Moving Beyond Market Fundamentalism To A More Balanced Economy ," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 80(3), pages 345-360, 09.
  25. Azariadis, Costas & Stiglitz, Joseph E, 1983. "Implicit Contracts and Fixed Price Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 1-22, Supplemen.
  26. Joesph E. Stiglitz, 1975. "Incentives, Risk, and Information: Notes Towards a Theory of Hierarchy," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 552-579, Autumn.
  27. Heywood, John S & Hubler, Olaf & Jirjahn, Uwe, 1998. "Variable Payment Schemes and Industrial Relations: Evidence from Germany," Kyklos, Wiley Blackwell, vol. 51(2), pages 237-57.
  28. Burdín, Gabriel & Dean, Andrés, 2009. "New evidence on wages and employment in worker cooperatives compared with capitalist firms," Journal of Comparative Economics, Elsevier, vol. 37(4), pages 517-533, December.
  29. Dow, Gregory K, 1993. "Why Capital Hires Labor: A Bargaining Perspective," American Economic Review, American Economic Association, vol. 83(1), pages 118-34, March.
  30. Putterman Louis, 1993. "Ownership and the Nature of the Firm," Journal of Comparative Economics, Elsevier, vol. 17(2), pages 243-263, June.
  31. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  32. Bruno Jossa, 2005. "Marx, Marxism and the cooperative movement," Cambridge Journal of Economics, Oxford University Press, vol. 29(1), pages 3-18, January.
  33. Douglas L. Kruse, 1993. "Does Profit Sharing Affect Productivity?," NBER Working Papers 4542, National Bureau of Economic Research, Inc.
  34. Akerlof, George A, 1984. "Gift Exchange and Efficiency-Wage Theory: Four Views," American Economic Review, American Economic Association, vol. 74(2), pages 79-83, May.
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. Ermanno Tortia & Martha Knox Haly & Anthony Jensen, . "Workers' propensity to cooperate with colleagues and the general population: a comparison based on a field experiment," Econometica Working Papers wp52, Econometica.

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:ris:aiccon:2013_117. 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: (Paolo Venturi).

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.