Internal Rent Seeking, Works Councils, and Optimal Establishment Size
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.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: Peter-Merian-Weg 6, Postfach, CH-4002 Basel|
Web page: http://wwz.unibas.ch
More information through EDIRC
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.:
- Lokshin, Michael & Beegle, Kathleen, 2006. "Forgone earnings from smoking : evidence for a developing country," Policy Research Working Paper Series 4018, The World Bank.
- Matthias Kräkel, 2008. "On Adverse Selection of Technologies," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(2), pages 343-355, June.
- repec:iab:iabzaf:v:41:i:2/3:p:305-326 is not listed on IDEAS
- Sandra E. Black & Lisa M. Lynch, 1997.
"How to Compete: The Impact of Workplace Practices and Information Technology on Productivity,"
NBER Working Papers
6120, National Bureau of Economic Research, Inc.
- Sandra E. Black & Lisa M. Lynch, 2001. "How To Compete: The Impact Of Workplace Practices And Information Technology On Productivity," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 434-445, August.
- Lisa M Lynch & Sandra E Black, 2002. "How to Compete: The Impact of Workplace Practices and Information Technology on Productivity," Working Papers 02-04, Center for Economic Studies, U.S. Census Bureau.
- S Black & L Lynch, 1997. "How to Compete: The Impact of Workplace Practices and Information Technology on Productivity," CEP Discussion Papers dp0376, Centre for Economic Performance, LSE.
- S. Black & L. Lynch, 1997. "How to compete: the impact of workplace practices and information technology on productivity," LSE Research Online Documents on Economics 20298, London School of Economics and Political Science, LSE Library.
- John Addison & Stanley Siebert & Joachim Wagner & Xiangdong Wei, 2000. "Worker Participation and Firm Performance: Evidence from Germany and Britain," British Journal of Industrial Relations, London School of Economics, vol. 38(1), pages 7-48, 03.
- Konrad, Kai A., 2004.
"Bidding in hierarchies,"
European Economic Review,
Elsevier, vol. 48(6), pages 1301-1308, December.
- Konrad, Kai A., 2003.
"Bidding in hierarchies
[Das Bieten in Hierarchien]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2003-27, Social Science Research Center Berlin (WZB).
- Konrad, Kai A., 2003. "Bidding in hierarchies
- Steffen Mueller, 2009. "The Productivity Effect of Non-Union Representation," Working Papers 074, Bavarian Graduate Program in Economics (BGPE).
- Fitzroy, Felix R & Kraft, Kornelius, 1987. "Efficiency and Internal Organization: Works Councils in West German Firms," Economica, London School of Economics and Political Science, vol. 54(216), pages 493-504, November.
- Richard B. Freeman & Edward P. Lazear, 1995.
"An Economic Analysis of Works Councils,"
in: Works Councils: Consultation, Representation, and Cooperation in Industrial Relations, pages 27-52
National Bureau of Economic Research, Inc.
- Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
- Addison, John T & Schnabel, Claus & Wagner, Joachim, 2001. "Work Councils in Germany: Their Effects on Establishment Performance," Oxford Economic Papers, Oxford University Press, vol. 53(4), pages 659-94, October.
- Uwe Jirjahn, 2009. "The Introduction of Works Councils in German Establishments - Rent Seeking or Rent Protection?," British Journal of Industrial Relations, London School of Economics, vol. 47(3), pages 521-545, 09.
- Bernd Fitzenberger & Karsten Kohn & Qingwei Wang, 2011.
"The erosion of union membership in Germany: determinants, densities, decompositions,"
Journal of Population Economics,
Springer;European Society for Population Economics, vol. 24(1), pages 141-165, January.
- Fitzenberger, Bernd & Kohn, Karsten & Wang, Qingwei, 2006. "The Erosion of Union Membership in Germany: Determinants, Densities, Decompositions," IZA Discussion Papers 2193, Institute for the Study of Labor (IZA).
- Fitzenberger, Bernd & Kohn, Karsten & Wang, Qingwei, 2006. "The Erosion of Union Membership in Germany: Determinants, Densities, Decompositions," ZEW Discussion Papers 06-66, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Awudu Abdulai & Hendrik Tietje, 2007. "Estimating technical efficiency under unobserved heterogeneity with stochastic frontier models: application to northern German dairy farms," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 34(3), pages 393-416, September.
- Lindbeck, Assar & Snower, Dennis J., 1987.
"Cooperation, Harassment, and Involuntary Unemployment: An Insider-Outsider Approach,"
CEPR Discussion Papers
196, C.E.P.R. Discussion Papers.
- Lindbeck, Assar & Snower, Dennis J, 1988. "Cooperation, Harassment, and Involuntary Unemployment: An Insider-Outsider Approach," American Economic Review, American Economic Association, vol. 78(1), pages 167-88, March.
- Zwick, Thomas, 2004. "Employee participation and productivity," Labour Economics, Elsevier, vol. 11(6), pages 715-740, December.
- Skaperdas, Stergios, 1996.
"Contest Success Functions,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-90, February.
- Kai A. Konrad, 2002.
"Investment in the Absence of Property Rights: The Role of Incumbency Advantages,"
CESifo Working Paper Series
698, CESifo Group Munich.
- Konrad, Kai A., 2002. "Investment in the absence of property rights; the role of incumbency advantages," European Economic Review, Elsevier, vol. 46(8), pages 1521-1537, September.
- Konrad, Kai A., 2001.
"Investment in the absence of property rights: the role of incumbency advantages
[Investitionsanreize bei unvollständigen Eigentumsrechten: die Rolle von Asymmetrien in Aneignungskonflikten]," Discussion Papers, Research Unit: Market Processes and Governance FS IV 01-18, Social Science Research Center Berlin (WZB).
- Konrad, Kai A., 2001. "Investment in the Absence of Property Rights: The Role of Incumbency Advantages," CEPR Discussion Papers 3050, C.E.P.R. Discussion Papers.
- Joel Rogers & Wolfgang Streeck, 1995. "Works Councils: Consultation, Representation, and Cooperation in Industrial Relations," NBER Books, National Bureau of Economic Research, Inc, number roge95-1, February.
- Inderst, Roman & Muller, Holger M. & Warneryd, Karl, 2007.
"Distributional conflict in organizations,"
European Economic Review,
Elsevier, vol. 51(2), pages 385-402, February.
- Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
- John T. Addison & Thorsten Schank & Claus Schnabel & Joachim Wagner, 2006.
"Works Councils in the Production Process,"
Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften,
Duncker & Humblot, Berlin, vol. 126(2), pages 251-283.
- Lindbeck, Assar & Snower, Dennis J., 1986.
"Efficiency Wages Versus Insiders and Outsiders,"
CEPR Discussion Papers
133, C.E.P.R. Discussion Papers.
- Verick, Sher, 2004. "Threshold Effects of Dismissal Protection Legislation in Germany," IZA Discussion Papers 991, Institute for the Study of Labor (IZA).
- Kraft Kornelius & Lang Julia, 2008. "The Causes and Consequences of Adopting a Works Council," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 228(5-6), pages 512-532, October.
- Michael Beckmann & Silvia Föhr & Matthias Kräkel, 2010. "Rent Seeking, Employment Security, and Works Councils: Theory and Evidence for Germany," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(1), pages 2-40, January.
- Hirsch, Barry T., 1990. "Market structure, union rent seeking, and firm profitability," Economics Letters, Elsevier, vol. 32(1), pages 75-79, January.
- Derik Burgert, 2006. "The Impact of German Job Protection Legislation on Job Creation in Small Establishments," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 52(2), pages 123-139.
- Bengt Holmstrom & John Roberts, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall.
- Nti, Kofi O, 1997. "Comparative Statics of Contests and Rent-Seeking Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 43-59, February.
- Michael Lokshin & Zurab Sajaia, 2004. "Maximum likelihood estimation of endogenous switching regression models," Stata Journal, StataCorp LP, vol. 4(3), pages 282-289, September.
- Warneryd, Karl, 2001. "Replicating contests," Economics Letters, Elsevier, vol. 71(3), pages 323-327, June.
- Thomas Zwick, 2005. "Continuing Vocational Training Forms and Establishment Productivity in Germany," German Economic Review, Verein für Socialpolitik, vol. 6(2), pages 155-184, 05.
When requesting a correction, please mention this item's handle: RePEc:bsl:wpaper:2011/14. 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: (WWZ)
If references are entirely missing, you can add them using this form.