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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:

    1. repec:bla:brjirl:v:55:y:2017:i:2:p:372-395 is not listed on IDEAS
    2. Brändle, Tobias & Baumann, Florian, 2013. "Union Bargaining and Intra-Industry Productivity Differentials: Theory and Evidence from Germany," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79852, Verein für Socialpolitik / German Economic Association.
    3. Uwe Cantner & Wolfgang Gerstlberger & Ipsita Roy, 2014. "Works Councils, Training Activities and Innovation: A Study of German Firms," Jena Economic Research Papers 2014-006, Friedrich-Schiller-University Jena.
    4. Steffen Mueller & Jens Stegmaier, 2017. "The Dynamic Effects of Works Councils on Labour Productivity: First Evidence from Panel Data," British Journal of Industrial Relations, London School of Economics, vol. 55(2), pages 372-395, June.
    5. repec:spr:qualqt:v:52:y:2018:i:2:d:10.1007_s11135-017-0495-6 is not listed on IDEAS

    More about this item

    Keywords

    establishment size; rent-seeking; works council;

    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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