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Ownership, incentives and monitoring

Bai, Chong-En and Xu, Cheng-Gang (2001) Ownership, incentives and monitoring. TE/01/413. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk/
Additional Information: © 2001 by the authors
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
Journal of Economic Literature Classification System: J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining > J54 - Producer Cooperatives; Labor Managed Firms
D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights
Sets: Collections > Economists Online
Departments > Economics
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: TE/01/413
Date Deposited: 10 Mar 2008 11:38
URL: http://eprints.lse.ac.uk/3750/

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