Information, incentives, and the Design of Efficient Institutions
(1979) , 17 pages
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- (en) Taking the problem of work-incentives more seriously than Kipling, the relatively young literature on workers' enterprises (or "labor-managed firms"), while indicating the general viability and from certain viewpoints superiority of this form of economic organization, has also witnessed criticism, and this on two main accounts. One vein of theoretical discontentment with workers' enterprises as an institution derives from a pathology perceived to reside in the "short-run" behavior of the type of firm in question, namely from its alleged tendency to reduce employment and production in reaction to an increase in its relative price of output. Elsewhere we have shown how this illusory pathology can be dismissed, either by paying proper attention to members' attitudes toward the prospects of being laid-off [Steinherr and Thisse, 1978], or simply by recognizing the rights-and-responsibilities package of worker-partnership as a good and allowing a market for it to function [Sertel, 1978]. The second main source of theoretical dissatisfaction regarding workers' enterprises relates to the question of how these firms are to be financed, which of course is precisely our concern here. In this domain a problem popularized by the work of Furubotn and Pejovic (1970), and in fact already suggested in the pioneering study of Ward (1958), arises when the firm is forced to be self-financed and worker-partners are denied the means of recuperating their investment at retirement. The problem here is manifested in the form of a syndrome of chronic underinvestment. The inevitable inefficiency of the mentioned restrictions is clearly displayed by Dreze (1976). We will return to some finer points raised by Dreze, but only after we agree with the reader on some preliminary definitions and notions.
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Sertel, M. R., & Steinherr, A. (1979). Information, incentives, and the Design of Efficient Institutions (Working Papers Institut des sciences économiques 7910). https://hdl.handle.net/2078.5/278797