Workers’ Effort: A Comparison Between Capitalist and Cooperative Firms

Alessandrini, Michele and Messori, Marcello (2013) Workers’ Effort: A Comparison Between Capitalist and Cooperative Firms. [Working Paper]. LUISS Academy, Roma. p. 30. Working Paper (2/2013). ISBN 978-88-6856-001-0.

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Abstract/Index

The purpose of this paper is to establish a comparison between capitalistic and cooperative firms by focusing on workers’ effort during productive activity in a model in which owners and/or managers suffer from information asymmetries. In our model agency relations do not mainly concern the design of incentive mechanisms but the setting of an optimal form of monitoring, centered on management control (albeit incomplete) on workers' effort during production. By using a principal-­‐agent framework, we show that in the presence of information asymmetries on the actual effort offered by each worker, the cooperative firm requires less monitoring to achieve an optimal level of worker effort. Being also owners of the firm and choosing the person responsible for management functions inside their circle, cooperative workers develop relations based on solidarity and forms of ‘peer monitoring’ which reduce monitoring costs. Consequently, the manager of the cooperative firm can devote more of his/her effort to organizational activity which increases the efficiency of the production process. Hence, in terms of working effort, governance in the cooperative firm is more efficient than in the capitalist firm. However, the opposite result is achieved when the purchasing cost of capital in the two kinds of firm is taken into consideration. Therefore, the financial constraints to the purchase of capital reduce the production efficiency of the cooperative relatively to the capitalistic firm. In addition, such constraints represent an obstacle to achieving an optimal rate of long-­‐term growth for the cooperative firm and benefiting from the related virtuous circle between increases in the level of employment and growth rate.

Item Type: Report / Paper (Working Paper)
Research documents and activity classification: Working Papers > Refereed Working Papers / of international relevance
Divisions: Department of Political Science
Uncontrolled Keywords: Organization of production. Firm Objectives. Organization, and Behavior. Cooperative entreprises. Firm beahvior: theory. Asymmetric and private information – mechanism design.
MIUR Scientific Area: Area 13 - Economics and Statistics > SECS-P/01 Political Economy
Deposited by: Barbara Scipioni
Date Deposited: 22 Jan 2014 16:08
Last Modified: 22 Apr 2015 00:15
URI: http://eprints.luiss.it/id/eprint/1275

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