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On the Neutrality of Asset Ownership for Work Incentives

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Author Info

  • Dow, G.L.

Abstract

Two ownership systems are compared: one where outsiders own the physical assets of firms and another where these assets are jointly owned by workers. Effort and side payments are self-enforced. Market-wide incentive constraints lead to restrictions on the distribution of profit between capital and labor which differ for the two systems. But these asymmetries are exactly offset by the bundling of input returns in a joint ownership economy, so for any self-enforcing equilibrium on the second-best frontier of one system there exists an equivalent equilibrium on the frontier of the other. An efficient outside ownership economy cannot be destabilized by spontaneous transitions to joint ownership or conversely. When capital is scarce, welfare maximization requires that all profit go to workers, but when labor is scarce all profit should go to asset owners.

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Bibliographic Info

Paper provided by Department of Economics, Simon Fraser University in its series Discussion Papers with number dp99-1.

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Length: 31 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:sfu:sfudps:dp99-1

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Postal: Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
Phone: (778)782-3508
Fax: (778)782-5944
Web page: http://www.sfu.ca/economics.html
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Postal: Working Paper Coordinator, Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada
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Web: http://www.sfu.ca/economics/research/publications.html

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Keywords: PROPERTY RIGHTS ; ENTERPRISES ; WORKERS;

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References

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  1. Andolfatto, D., 1993. "Optimal Team Contracts," Working Papers, University of Waterloo, Department of Economics 9306, University of Waterloo, Department of Economics.
  2. Dow, Gregory K., 1986. "Control rights, competitive markets, and the labor management debate," Journal of Comparative Economics, Elsevier, vol. 10(1), pages 48-61, March.
  3. Gregory Dow, 1996. "Replicating Walrasian equilibria using markets for membership in labor-managed firms," Review of Economic Design, Springer, Springer, vol. 2(1), pages 147-162, December.
  4. Dow, Gregory K, 1993. "Why Capital Hires Labor: A Bargaining Perspective," American Economic Review, American Economic Association, American Economic Association, vol. 83(1), pages 118-34, March.
  5. Dow, G & Putterman, L, 1996. "Why Capital (Usually) Hires Labor : An Assessment of Proposed Explanations," Discussion Papers, Department of Economics, Simon Fraser University dp97-03, Department of Economics, Simon Fraser University.
  6. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 7(0), pages 24-52, Special I.
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Citations

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Cited by:
  1. Gregory K. Dow, 2000. "The Ultimate Control Group," Discussion Papers, Department of Economics, Simon Fraser University dp00-16, Department of Economics, Simon Fraser University, revised Aug 2000.
  2. Dow, Gregory K. & Putterman, Louis, 2000. "Why capital suppliers (usually) hire workers: what we know and what we need to know," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 43(3), pages 319-336, November.
  3. Chang, Juin-jen & Lai, Ching-chong & Lin, Chung-cheng, 2003. "Profit sharing, worker effort, and double-sided moral hazard in an efficiency wage model," Journal of Comparative Economics, Elsevier, vol. 31(1), pages 75-93, March.

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