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Internal Rent Seeking, Works Councils, and Optimal Establishment Size

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  • Beckmann, Michael

    (University of Basel)

  • Kräkel, Matthias

Abstract

Using a microeconomic model and data from the Establishment Panel of the German Institute for Employment Research, we analyze the optimal establishment size against the background of rent-seeking workers and the influence of works councils. The theoretical part shows that establishment size has a discouragement effect on the level of individual rent seeking but also a quantity effect as the number of rent seekers increases. The interplay of both effects – together with technological considerations – determines whether the employer chooses an inefficiently small or large establishment size. Introduction of a works council restores efficient establishment size although it is purely used as rent-seeking device. Whether the employer benefits from a works council or not, depends on the degree of contract incompleteness and the degree of worker coordination via a works council. The empirical part indicates dominance of the discouragement effect over the quantity effect in establishments without works council. As theoretically predicted, works councils are beneficial by disentangling rent-seeking and production issues, thus eliminating the influence of the two rent-seeking effects.

Suggested Citation

  • Beckmann, Michael & Kräkel, Matthias, 2011. "Internal Rent Seeking, Works Councils, and Optimal Establishment Size," Working papers 2011/14, Faculty of Business and Economics - University of Basel.
  • Handle: RePEc:bsl:wpaper:2011/14
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    Cited by:

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    2. Brändle, Tobias & Baumann, Florian, 2013. "Union Bargaining and Intra-Industry Productivity Differentials: Theory and Evidence from Germany," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79852, Verein für Socialpolitik / German Economic Association.
    3. Escalante, Edwar E., 2020. "Night watchers and terrorists," Journal of Economic Behavior & Organization, Elsevier, vol. 171(C), pages 116-131.
    4. Ipsita Roy & Uwe Cantner & Wolfgang Gerstlberger, 2020. "Works councils, training activities and innovation: a study of German firms," International Journal of Human Resources Development and Management, Inderscience Enterprises Ltd, vol. 20(3/4), pages 269-294.
    5. Mario Bossler & Gregor Geis & Jens Stegmaier, 2018. "Comparing survey data with an official administrative population: assessing sample-selectivity in the IAB Establishment Panel," Quality & Quantity: International Journal of Methodology, Springer, vol. 52(2), pages 899-920, March.

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    More about this item

    Keywords

    establishment size; rent-seeking; works council;
    All these keywords.

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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