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Valuation of the Shares of a Labor-Managed Firm

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  • Tutuncu, Mehmet M.

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)

Abstract

Traditional analyses of the labor-manages firm, whose objective is assumed to be the maximization of earnings per worker, have shown that this economic organization must exhibit "perverse" behavior. Recently, it has been claimed that, entry of new workers into the firm is allowed only when they pay the price of the partnership shares, the labor-managed firm will not be perverse. Here, the shares give their holders both the ownership and the right to work in the firm, and workers and shareholders coincide. In this paper, we characterize the price of partnership shares under certain assumptions by starting from an explicit formulation of the multi-period optimization problem in the labor-managed firm. Which such prices, one does obtain the result that the labor-managed is not perverse. However, we also show that, under the same set of assumptions, the workers in the firms are different of the workers in the firms, on the hand, and hiring new workers by paying them the going wage rate without giving them partnership rights, on the other hand.

Suggested Citation

  • Tutuncu, Mehmet M., 1991. "Valuation of the Shares of a Labor-Managed Firm," LIDAM Discussion Papers IRES 1991009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:1991009
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    Keywords

    labour market; enterprises;

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