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Ownership, incentives and monitoring

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  • Bai, Chong-En
  • Xu, Cheng-Gang

Abstract

This paper studies the effect of ownership structure on workers’ incentives for investing in firm-specific human capital. Particularly, we analyse such incentives and monitoring under employee ownership and capitalist ownership. In our model, the employee-owned firm is a firm bought by its workers who pay the competitive price. Under certain conditions, we show that the workers’ investment and expected income are higher and the monitoring intensity is lower in an employee-owned firm than they are in a capitalist firm. We also show that the incentive effect of employee ownership increases as a worker’s reservation wage decreases, as the monitoring cost or as the productivity uncertainty increases. Most of our results are consistent with the available empirical evidence.

Suggested Citation

  • Bai, Chong-En & Xu, Cheng-Gang, 2001. "Ownership, incentives and monitoring," LSE Research Online Documents on Economics 3750, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:3750
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    File URL: http://eprints.lse.ac.uk/3750/
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    More about this item

    Keywords

    Employee ownership; monitoring; incentives; property rights;
    All these keywords.

    JEL classification:

    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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