TITLE:
Workers’ Effort: A Comparison between Capitalist and Cooperative Firms
AUTHORS:
Michele Alessandrini, Marcello Messori
KEYWORDS:
Cooperative and Capitalistic Firms, Workers’ Effort, Governance, Agency Relations, Information Asymmetry, Social Consciousness
JOURNAL NAME:
Theoretical Economics Letters,
Vol.6 No.3,
June
28,
2016
ABSTRACT: The purpose of this
paper is to compare the efficiency of capitalistic and cooperative firms by focusing
on the workers’ effort in production activity, when this effort is only known
to workers, thus causing information asymmetries between workers and managers
of both types of firms. Therefore, our model uses a principal-agents framework
with workers’ hidden actions. The agency relations are not centered on the
optimal design of incentive mechanisms but on the efficient (albeit incomplete)
managerial monitoring of workers’ private effort. Moreover there is a trade-off
between this monitoring activity and another managerial activity, i.e. the organization of production
processes. We show that, taking into account the information asymmetries that
characterize our model, the cooperative firm requires less monitoring than the
capitalist firm to achieve the same efficient level of workers’ effort. This
allows the manager of the former firm to devote more working time to
organizational activity than the manager of the latter firm. In this respect,
the governance of the cooperative firm dominates that of the capitalist firm. However,
both types of firms need capital to operate and face different financial
constraints in terms of the capital’s purchasing cost. These financial
constraints affect the cooperative firm more severely than the capitalistic
firm. Our conclusion is that these two types of firms have specific strengths
and weaknesses, which make it difficult to reach general analytical results in
terms of their relative efficiency. Additionally, the financial constraints
characterizing the cooperative firm hinder maximization of its long-term growth
rate; on the other hand, this kind of firm can better exploit the virtuous
circle between increases in the employment level and increases in the growth
rate.