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On the Neutrality of Asset Ownership for Work Incentives

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  • Dow, G.L.

Abstract

Two ownership systems are compared: one where outsiders own the physical assets of firms and another where these assets are jointly owned by workers. Effort and side payments are self-enforced. Market-wide incentive constraints lead to restrictions on the distribution of profit between capital and labor which differ for the two systems. But these asymmetries are exactly offset by the bundling of input returns in a joint ownership economy, so for any self-enforcing equilibrium on the second-best frontier of one system there exists an equivalent equilibrium on the frontier of the other. An efficient outside ownership economy cannot be destabilized by spontaneous transitions to joint ownership or conversely. When capital is scarce, welfare maximization requires that all profit go to workers, but when labor is scarce all profit should go to asset owners.

Suggested Citation

  • Dow, G.L., 1999. "On the Neutrality of Asset Ownership for Work Incentives," Discussion Papers dp99-1, Department of Economics, Simon Fraser University.
    • Handle: RePEc:sfu:sfudps:dp99-1
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    1. is not listed on IDEAS
    2. Dow, Gregory K., 2002. "The ultimate control group," Journal of Economic Behavior & Organization, Elsevier, vol. 49(1), pages 39-49, September.
    3. repec:bla:annpce:v:89:y:2018:i:1:p:65-86 is not listed on IDEAS
    4. Chang, Juin-jen & Lai, Ching-chong & Lin, Chung-cheng, 2003. "Profit sharing, worker effort, and double-sided moral hazard in an efficiency wage model," Journal of Comparative Economics, Elsevier, vol. 31(1), pages 75-93, March.
    5. Dow, Gregory K. & Putterman, Louis, 2000. "Why capital suppliers (usually) hire workers: what we know and what we need to know," Journal of Economic Behavior & Organization, Elsevier, vol. 43(3), pages 319-336, November.
    6. Gregory K. DOW, 2018. "The Theory Of The Labor-Managed Firm: Past, Present, And Future," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 89(1), pages 65-86, March.
    7. Cecilia Navarra & Ermanno Tortia, 2014. "Employer Moral Hazard, Wage Rigidity, and Worker Cooperatives: A Theoretical Appraisal," Journal of Economic Issues, Taylor & Francis Journals, vol. 48(3), pages 707-726.
    8. Dow,Gregory K., 2019. "The Labor-Managed Firm," Cambridge Books, Cambridge University Press, number 9781107589650, January.

    More about this item

    Keywords

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    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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