Valuation of the Shares of a Labor-Managed Firm
(1991) , 23 pages
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- Abstract
- Traditional analyses of the labor-managed 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, if 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 of the workers in the labor-managed firm. With such prices, one does obtain the result that the labor-managed firm is not perverse. However, we also show that, under the same set of assumptions, the workers in the firm are indifferent between allowing new workers into the firm by selling the shares of the firm, on the one hand, and hiring new workers by paying them the going wage rate without giving them partnership rights, on the other hand.
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Citations
Tutuncu, M. M. (1991). Valuation of the Shares of a Labor-Managed Firm (Working Papers Institut des sciences économiques 9109). https://hdl.handle.net/2078.5/281363