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Works councils: an agency perspective

  • Juan M. Gallego


This paper investigates the role of works councils in a simple agency framework in which works councils are supposed to monitor manager´s information on behalf of the workforce, but they are independent agents who might pursue their private interest. First, we consider that workers can incentivizeworks councils through contingent monetary payments. In order to deter collusion, workers must pay higher compensations in states of nature where they can be expropriated by potential coalitions among works councils and management. Collusion makes contingent payments costly and reduces workers´ payoffs. Second, when elections are the exclusive mechanisms to align works councils´ interest, only well compensated representatives would face an intertemporal tradeoff between accepting management´s transfers at first period and losing rents at the second period. Elections increase the cost of entering on collusive behavior with management and works councils will try to behave on the employees´ interest.

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Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 010092.

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Length: 30
Date of creation: 19 Nov 2012
Date of revision:
Handle: RePEc:col:000092:010092
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  1. Zwick, Thomas, 2004. "Employee participation and productivity," Labour Economics, Elsevier, vol. 11(6), pages 715-740, December.
  2. Olaf H¸bler & Uwe Jirjahn, 2003. "Works Councils and Collective Bargaining in Germany: The Impact on Productivity and Wages," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(4), pages 471-491, 09.
  3. Eric Maskin & Jean Tirole, 2004. "The Politician and the Judge: Accountability in Government," American Economic Review, American Economic Association, vol. 94(4), pages 1034-1054, September.
  4. Addison, John T. & Schnabel, Claus & Wagner, Joachim, 2003. "The Course of Research into the Economic Consequences of German Works Councils," IZA Discussion Papers 878, Institute for the Study of Labor (IZA).
  5. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
  6. 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.
  7. Kofman, F. & Lawarree, J., 1993. "On the Optimality of Allowing Collusion," Working Papers 93-02, University of Washington, Department of Economics.
  8. Addison, John T. & Bellmann, Lutz & Schnabel, Claus & Wagner, Joachim, 2002. "German Works Councils Old and New: Incidence, Coverage and Determinants," IZA Discussion Papers 495, Institute for the Study of Labor (IZA).
  9. David Weil, 2003. "Individual Rights and Collective Agents: The Role of Old and New Workplace Institution in the Regulation of Labor Markets," NBER Working Papers 9565, National Bureau of Economic Research, Inc.
  10. Hart, Oliver, 1995. "Corporate Governance: Some Theory and Implications," Economic Journal, Royal Economic Society, vol. 105(430), pages 678-89, May.
  11. repec:bla:restud:v:50:y:1983:i:1:p:3-35 is not listed on IDEAS
  12. 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, December.
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