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Works councils: an agency perspective

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  • Juan M. Gallego

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Abstract

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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  • Juan M. Gallego, 2012. "Works councils: an agency perspective," Documentos de Trabajo 010092, Universidad del Rosario.
    • Handle: RePEc:col:000092:010092
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    File URL: http://repository.urosario.edu.co/handle/10336/11529
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    References listed on IDEAS

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    1. John T. Addison & Claus Schnabel & Joachim Wagner, 2004. "The Course of Research into the Economic Consequences of German Works Councils," British Journal of Industrial Relations, London School of Economics, vol. 42(2), pages 255-281, June.
    2. Hart, Oliver, 1995. "Corporate Governance: Some Theory and Implications," Economic Journal, Royal Economic Society, vol. 105(430), pages 678-689, May.
    3. 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 of Labor Economics (IZA).
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    5. 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, September.
    6. Kofman, Fred & Lawarree, Jacques, 1996. "On the optimality of allowing collusion," Journal of Public Economics, Elsevier, vol. 61(3), pages 383-407, September.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. Zwick, Thomas, 2004. "Employee participation and productivity," Labour Economics, Elsevier, vol. 11(6), pages 715-740, December.
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    More about this item

    Keywords

    Workplace Representation; Works Councils; Collusion; Elections;

    JEL classification:

    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • J83 - Labor and Demographic Economics - - Labor Standards - - - Workers' Rights

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