profit sharing and productivity some further evidence new estimates for west germany indicate overall productivity differentials of 20 30 percent in favor of firms practicing profit sharing these compare with estimates of 3 8 percent for comparable british firms reported in a recent issue like the u k results they reveal important interactions between profit sharing and other firm specific characteristics reinforcing the view that profit sharing be regarded as an integral element of overall organizational design but the fact that in germany profit sharing is apparently used in a different way than in the united kingdom by different kinds of firms suggests that there is no single uniquely appropriate context and role for profit sharing copyright 1990 by royal economic society

the scope nature and effects of employee stock ownership plans in japan using data for various years including new data for 1973 84 the authors examine the scope nature determinants and effects of japanese employee stock ownership plans esops in 1988 of firms listed on japan s eight stock exchange markets 91 had an esop and the average non executive employee plan participant owned stock worth about 14 000 probit estimates for a sample of manufacturing firms show that firms were more likely to adopt esops when recent business performance was below average the capital labor ratio was relatively low and employment growth was relatively fast evidence is also found that esops enhanced enterprise productivity the authors argue that esops have played an important and largely overlooked role in the success of the japanese economy over the past two decades

social interaction co worker altruism and incentives social interaction with colleagues is an important job attribute for many workers to attract and retain workers managers therefore need to think about how to create and preserve high quality co worker relationships this paper develops a principal multi agent model where agents do not only engage in productive activities but also in social interaction with their colleagues which in turn creates co worker altruism we study how financial incentives for productive activities can improve or damage the work climate we show that both team incentives and relative incentives can help to create a good work climate

profit sharing and productivity microeconomic evidence from the united states profit sharing has often been suggested as a potential solution to principal agent problems in the workplace the relationship between productivity and profit sharing is examined using a panel dataset drawn from 2 976 publicly held companies over the 1971 85 period alternatively using firm intercept and first difference specifications the regression results indicate that the adoption of profit sharing is associated with a 2 5 4 2 percent increase in productivity in addition the size of the effect increases with the proportion of employees participating in profit sharing these results hold under a variety of specifications and do not appear to be explained by accompanying changes in management or personnel policies copyright 1992 by royal economic society

team human capital and worker mobility we discuss the concept of team human capital and study the renegotiation of labor compensation after team members privately observe their own reservation wage as labor productivity can only be high if the number of quits does not exceed a threshold decisions concerning acceptance of individual wage demands become interdependent when a team is made up of salaried workers a peculiar case of efficiency wage results moreover inefficient team dissolution may occur we then show that inefficiency is less likely to occur when team members form a partnership

profit sharing in the british retail trade sector the relative performance of the john lewis partnership this paper investigates the effects of profit sharing on wages and employment by comparing the labour market behaviour of the john lewis partnership with that of four main competitors the john lewis partnership employs around 30000 workers who since 1970 have been paid between 13 and 24 per cent of workers income in the form of a profit related bonus the empirical works suggests that profit sharing in the john lewis partnership may be associated with greater levels of employment but does not significantly affect the level of remuneration in recent years a growing proportion of employment contracts in britain have linked pay with the fortunes of the firm see for example blanchflower and oswald 1988 this trend has been stimulated by the british government s introduction of tax relief for profit related pay prp first in 1987 and extended in 1991 weitzman 1984 argues that profit sharing will stabilize employment reduce unemployment and increase wage flexibility the possibility of these externalities from profit sharing on wider economic performance has been used to justify policy interventions this paper reports empirical tests of wage determination and employment creation effects based on a comparison of the labour market behaviour of the john lewis partnership with that of four important competitors in the british retail sector we find some evidence that profit sharing enhances employment

payment schemes and gender in germany the authors estimate the determinants of five types of variable payment schemes using panel data on german establishments in 1994 and 1996 women were disproportionately included in schemes based on individual productivity and on profit sharing but not in those based on work group productivity this pattern seems inconsistent with the claim that women are sorted due to their shorter expected tenure instead the authors argue the critical issue may be that women have a greater need for flexibility between work and home than men do collective bargaining coverage and other industrial relations variables are shown to be influential determinants interacting with gender

wage flexibility in the united states lessons from the past in another paper forthcoming i have contrasted wage setting in the 1920 s with that of the post world war ii period during the 1920 s and early 1930 s the u s bureau of labor statistics published an incomplete sample of reported wage change decisions at the establishment level perhaps the best way to summarize the results is to direct attention to table 1 which presents the distribution of manufacturing wagechange decisions during 1924 and 1925 years in which consumer price inflation was respectively 2 and 4 0 percent on a december to december basis the table shows a wide array of wagechange decisions ranging from cuts of over 20 percent to increases of similar magnitude this dispersion of decisions is remarkable by post world war ii standards moreover the postwar evidence suggests that nominal wage cuts are a rarity even in periods of low inflation when they do occur as in some recent union concessions the cuts result from a painful negotiations process against a background of threatened or actual mass layoffs by the 1920 s many features of modern corporate enterprise were present but unions were of little significance in most sectors including manufacturing the result of a sustained open shop campaign by employers after world war i there was little labor market intervention by government workers resented wage cuts during periods of generalized wage cutting such reductions became important causes of strikes but employers implemented them anyway and when employers did not want to take the blame for wage cuts they used company unions to negotiate reductions robert dunn 1927 pp 21 23 in short in the absence of unions or other institutional constraints the implicit contracts offered by employers in the 1920 s provided substantially more wage flexibility than existed after world war ii the wagesetting mechanisms of the 1920 s did not approach the flexibility of a classical auction market a fact of some comfort to implicitcontract theorists however it is unclear that one needs to go much beyond simple explanations of how wage cuts or even relative wage slippage would lead to worker resentment and management caution

profitability and profit sharing claims that profit sharing is a purely distributive wealth confiscation scheme without incentive effects due to free rider problems are based on neglect of cooperation and interaction in the workforce when these activities are difficult to monitor directly group incentives such as profit sharing can increase efficiency and maintain a superior nashequilibrium with strictly individual optimization with simultaneous wls tobit estimates we find here strong effects of profit sharing and worker ownership shares on residual owners return on capital in medium sized metal working firms in west germany complementing earlier results on productivity

internal bargaining and strategic innovation in the theory of the firm abstract the transaction cost analysis of the firm has identified asset idiosyncrasy and the risk of ex post opportunism as key determinants of organizational form simultaneously several writers have modeled the distribution of quasi rents among input suppliers as a bargaining game these complementary ideas are used to formalize the notion of strategic innovation where capital and labor attempt to redistribute firm income after specialized assets are in place through unilateral modifications in production technology because strategic behavior can enlarge the quasi rent component of fifirm income this process may persist in equilibrium asset idiosyncrasy therefore creates room for an autonomous theory of organizational dynamics partially insulated from events at the market level of analysis

the organization of work a historical dimension abstract an evaluation of the organizational efficiencies of various modes of production by o e williamson has led him to conclude that given identical technologies the factory was more efficient than the putting out system the superior organizational efficiency of the former he maintains was one reason for the transition to factory production during the nineteenth century this paper challenges that view it is argued that the way in which williamson evaluates efficiency is open to methodological and other objections and that there is limited empirical support for his hypothesis given an identical technology the evidence suggests that the putting out system was usually able to compete with the factory

the effects of unions on organisational change and employment this paper investigates the association between unionism organizational change and employment using british data over 1980 84 union plants were more likely to have experienced organizational change this is likely to be due to both the once for all removal of restrictive practices and union voice effects the oft cited negative relationship between unionism and employment growth may well arise from the differential extent to which restrictive practices were removed in union plants during 1980 84 more importantly the authors present evidence suggesting that unions were associated with faster employment growth during the late 1970s copyright 1991 by royal economic society

are workers paid their marginal products status is like coase s social costs a reciprocal phenomenon given that one person s gain in status can occur only at the expense of a loss in status for others and that workers are free to choose their coworkers it follows that the competitive wage structure within a firm must be one in which individual wage differences understate individual differences in marginal products the purpose of this paper is to examine a variety of empirical evidence that relates to this proposition about the firm s internal wage structure the paper is organized as follows section i briefly summarizes the theoretical considerations that govern competitive wage determination when status matters to people and firms are viewed as voluntary associations of workers section ii then confronts the predictions of section i by examining pay and productivity schedules for a group of sales occupations for which these schedules are relatively easily observed section ii also examines the relationship between wages and productivity for a sample of university professors an occupation in which individual productivity differences are for a variety of obvious reasons relatively more difficult to measure all of the evidence examined is consistent with the hypothesis that within firms wage rates vary substantially less than do individual productivity values section iii discusses additional observations and evidence that bear on this same hypothesis it suggests that the implicit market for status may strongly influence the ways in which firms are organized to carry out the tasks they perform section iv concludes by considering the claim that egalitarian internal wage structures arise because of equity considerations it argues that the concept of equity appears very closely linked to the concept of status and suggests a strategy for assigning monetaty value to the equity considerations that so often dominate public policy decisions

cooperation productivity and profit sharing firm specific assets generate an ex post bargaining problem over surplus division and rational workers may collude to obtain a surplus share in nonpecuniary form through restriction of effort conversely profit sharing should motivate cooperation to increase productivity when work organization facilitates interaction and horizontal monitoring since productive effort yields positive externalities to workers under contractual surplus sharing in simultaneous tobit estimates we find a strong influence of profit sharing on factor productivity in a sample of medium sized metalworking capitalist firms in west germany proxies for human capital and organizational factors were included

a theory of credibility this paper presents models in which one agent must decide whether to trust another whose motives are uncertain reliability can only be communicated through actions in this context it pays for people to build a reputation based on reliable behaviour someone becomes credible by consistently providing accurate and valuable information or by performing useful services the theory provides a justification for long term arrangements without binding contracts it also describes those situations where it pays an agent to cash in on his reputation many decisions depend on trusting someone consumers must decide whether to believe advertisements banks need to judge the reliability of loan applicants and employers must decide how much responsibility to delegate to their employees this paper attempts to model situations that arise when someone is uncertain about whether to trust the people he deals with in this context reputations for reliability are valuable an agent becomes credible by consistently providing accurate valuable information or by always acting responsibly i analyse a series of simple abstract models of information transmission in the basic model there are two agents the sender s and the receiver r who are to play the game a known finite number of times at each stage both players learn the value of a parameter measuring the importance of that period s play of the game that is the value of making a correct decision and s obtains payoff relevant information s then sends a signal to r who makes a decision that affects the welfare of both players after both players learn the consequences of r s decision the process repeats at each stage r must decide what action to take in order to do that he must assess the credibility of s the difficulty arises because r is uncertain about s s preferences when play begins i model this by assuming that with positive probability s has identical preferences to r s is a friend and with positive probability s has completely opposed preferences to r s is an enemy this uncertainty creates a trade off for enemy senders at each stage providing honest information enhances s s reputation but only at the expense of foregoing an opportunity for immediate gain by duping r the possibility that s is a friend lends credibility to what he says but this credibility may also be exploited by an enemy s the principal equilibrium has the following form in the basic model where s has no control over the importance of a given play s typically conveys accurate information for the first several periods r raises the probability he places on s being friendly after receiving accurate information if he believes that an enemy would have lied to him with positive probability the more important the information the more likely an enemy will attempt to deceive r an enemy will eventually take advantage of r by misleading him when this happens the sender loses all opportunities for deception in the future i

the function of authority in transaction cost economics abstract this paper questions the transaction cost characterization of observed authority relations as efficient governance structures various inadequacies in the transaction cost account of work organization and the limits of firm size are traced to its neglect of the possibility that authority may be abused opportunistically this exemplifies a more general propensity in the transaction cost literature that of explaining economic organization in functionalist terms with little attention to the causal mechanisms through which efficient governance structures might actually arise three such mechanisms are considered but none is found to provide an adequate rationale for the imputation of efficiency to observed structures

employee ownership and internal governance abstract this paper is designed to counter oliver williamson s hypothetical peer group model of organization with a discussion of three prosperous populations of employee owned firms worked owned scavenger companies taxi cooperatives and professional partnerships such as the large law firm it will be shown here that these firms are formed endure and prevail over their competition for reasons that williamson more than anyone else has taught us to appreciate in particular this paper will argue that the metering problems and human asset considerations that are so prominently featured in williamson s work are crucial for understanding the success of these firms

on some recent explanations of why capital hires labor conventional microeconomics contains no explanation of why capital hires labor and not the reverse in view of some surprisingly positive results in the theoretical analysis of worker run enterprise systems recent contributions to the theory of the firm have attempted to explain the dominance of capitalist production relations in efficiency terms the present paper critically reviews works in this area by alchian and demsetz 1972 williamson 1975 1980 and jensen and meckling 1979 and contends that a convincing efficiency argument for the general superiority of capital owners over workers control of enterprises still is lacking

on the economic rationale for codetermination law abstract this paper develops a positive efficiency economic case for codetermination law resting on the correction of labor and capital market and organizational failures a legally mandated codetermination structure is shown to provide employee checks on several structural incentives for management opportunism codetermination is shown to offer advantages for technical efficiency skill development and knowledge generation through its protection of specific human capital investments financial markets cannot enforce codetermination due to a set of free rider problems

innovation rent sharing and the organization of labour in the federal republic of germany rent seeking by unions may inhibit various kinds of investment particularly r d and unionization is often negatively related to innovation across industries formal organization and collective bargaining may also reduce the flexibility of work organization and hence inhibit innovation in a sample of small and medium sized firms in the frg metal working industry a measure of organized labour was negatively related to product innovation but there was little evidence for rent seeking in simultaneous estimates

why u s wage and employment behavior differs from that in britain and japan if a poll were to be conducted among american academic economists to select the most mystifying economic phenomenon of our time surely the sticky nominal wage rate would emerge at or near the top of the list the slow and partial response of the nominal wage rate to changes in aggregate nominal spending has been a central postulate of macroeconomic theory for the past 45 years from keynes general theory down to the standard postwar textbook keynesian paradigm to the more modern fixed wage price models of robert barro and herschel grossman i976 and edmond malinvaud i977 unwilling passively to accept nominal wage rigidity as an unexplained assumption many labour market theorists have followed the lead of costas azariadis i975 and martin baily i974 in building models to explain rigid wages and layoff unemployment as the rational outcome of a profit maximising calculus as i pointed out in an early critique of the azariadis baily model i976a their assumptions cannot explain cycles in employment but rather why workers would want fixed incomes i e a fixed wage rate and fixed employment soon thereafter barro i977 went one step further and argued that contract theory is a facade which cannot explain why workers would choose a rigid wage and variable employment in preference to the classical equilibrium quantity of employment that equates the marginal product of labour with the marginal value of time now an examination of the evidence has led me to the realisation that rigid wages cannot provide the underpinnings for a universally valid theory of the business cycle simply because wages are not universally rigid i document below with postwar quarterly data that the share of fluctuations in the manufacturing wage bill taking the form of nominal wage changes as compared to changes in hours worked is five to ten times greater in britain and japan than in

employment entrepreneurship and 1992 microeconomic policy and european problems this essay has covered several areas which are not usually regarded as closely interrelated policy conclusions have been discussed briefly at various points and will now be developed more fully in this final section as evidence for the interrelatedness of such disparate fields as corporate finance and employment policy we start from the observation that many large firms are relatively inefficient particularly at product innovation and flexible organization and employment policies in part because top managerial compensation depends mainly on size this creates an incentive for excessive growth and empire building rather than payment to shareholders of the free cash flow which cannot be profitably invested internally more appropriate incentives for top management would increase dividend payments and hence the flow of funds into the capital market available for financing new start ups and small firms as venture capital even in the u s the cost of obtaining external capital often constrains small firms to invest only their internal cash flow fazzari et al 1988

age size growth and survival uk companies in the 1980s this paper examines growth and survival amongst quoted and unquoted u k companies in the period 1975 85 and compares the results with earlier u k and u s studies an examination of death rates shows that smaller companies had higher death rates but the largest and smallest companies were least vulnerable to takeover careful attention is therefore paid to problems of sample selection bias it is shown that smaller companies grew faster than larger companies that gibrat s law does not hold amongst smaller firms that age is negatively related to growth and that these results are not an artifact of sample selection bias copyright 1994 by blackwell publishing ltd

work norms and involuntary unemployment consider the organizational environment of labor management wherein the firm can measure the average performance i e group work norm of its employees but has difficulty in observing the individual worker s performance within the group accordingly the worker s remuneration is based on the observed group norm because of the way in which workers interact among themselves in setting work norms there results an undersupply of effort from a given workforce size furthermore the group work norm is shown to be negatively correlated with the size of the workforce consequently short run unemployment can arise with involuntary features the paper also explores the effectiveness of alternative remuneration schemes in mitigating the inefficiency associated with the group work norm setting

profit sharing in british industry 1865 1913 abstract this paper examines the history of profit sharing in britain between 1865 and 1913 some 300 schemes were introduced during the period and these were intended both to raise labour productivity and to improve industrial relations in the firms concerned these schemes appear to have added significantly to the wages of eligible workers but were frequently given up after a period of experiment analysis of the survival rate of schemes indicates an important role for the type of scheme by method of payment and the size of firm but suggests that the probability of abandonment increased with the duration of the scheme

optimal labour contracts under asymmetric information an introduction the review of economic studies has instituted a new series of lectures to be given annually by a younger british economist at the association of university teachers of economics meetings the choice of lecturer is determined by a panel whose members are currently professors hahn mirrlees and nobay this paper is a revised version of the first lecture in the series it was presented at the aute meeting held at the university of surrey in april 1982 and was refereed in the usual way mak

innovation and market strategy in italian industrial cooperatives econometric evidence on organizational comparative advantage abstract this paper argues that more than one type of organizational form can be simultaneously efficient within an industry when differentiation in product qualities are significant firms with some exogenous or persistent component to their organizational structure will specialize in product qualities for which their organizational structure puts them at an advantage relative to other firms this framework is used in an empirical study of innovation and market strategy of industrial cooperatives results of management surveys of italian cooperatives on company strategy are combined with company financial data to test the hypothesis that industrial cooperatives will hold organizational comparative advantages in innovative activity which stresses the production knowledge of ordinary employees in high quality products and in the use of specialized corporate alliances strong evidence supporting the hypotheses are found when the performance of the firm is measured by its profitability and income per member

determinants of the incidence of group incentives evidence from canada we use canadian data on four group incentive schemes to examine the deter minants of the probability that a firm offers each scheme to its non managerial workers and to production workers alone we find that unionization lowers the incidence of group incentives except for productivity gainsharing larger firms are more likely to offer share purchase plans to all non managerial employees and profit sharing to production workers cash bonuses are less common in larger firms we find little indication that group incentives are either discouraged by machine paced production or more common in firms with good industrial relations

social mobility and redistributive politics just like economists voters have conflicting views about redistributive taxation because they estimate its incentive costs differently we model rational agents as trying to learn from their dynastic income mobility experience the relative importance of effort and predetermined factors in the generation of income inequality and therefore the magnitude of these incentive costs in the long run left wing dynasties believing less in individual effort and voting for more redistribution coexist with right wing dynasties this allows us to explain why individual mobility experience and not only current income matters for political attiitudes and how persistent differences in perceptions about social mobility can generate persistent differences in redistribution across countries

estimating time varying bargaining power a fishery application i introduction many economists and ecologists alike have supported rights based management systems as a form of fishery management that addresses the causes of inefficient resource use e g costello et al 2008 despite these convincing studies most fisheries have yet to impose any form of rights based management in fact in the united states from 1996 through 2002 a moratorium was in effect on the creation of management systems that assigned fishing quota to individual vessels often referred to as individual fishing quota ifq management 1 there has been some political resistance to the move from regulated open access management which imposes total catch limits for the fishery but no individual limits to rights based management which generally imposes some form of individual fishing rights at the core of this resistance is not the question of efficiency but the possibility of potentially severe changes or distortions in rent distribution in the market between fishers and processors the ex vessel market processors and some researchers have been concerned that fishers will achieve near total rent extraction when ifqs are given only to fishers as is typically the case e g matulich et al 1996 models that assume complete rent extraction by fishers also assume that the ex vessel market is perfectly competitive for many fisheries this assumption of perfect competition is not appropriate the geographic remoteness of many fishing areas often creates markets in which multiple fishing vessels must deliver their catch to a small number of processing facilities when one considers this remoteness together with the possibility of limited entry restrictions on the harvesting and processing sectors processing firm consolidation fishers bargaining associations and instances of fisher processor vertical integration it is evident that there are a host of reasons why ex vessel markets are normally not completely competitive thus the creation of property rights through ifqs occurs not in an idealized purely competitive environment but in an imperfectly competitive market with a myriad of factors that affect both processors and fishers abilities to extract rents a bilateral bargaining framework has been suggested by several researchers as an alternative to the competitive market specification for some ex vessel markets e g halvorsen et al 2000 matulich et al 1995 munro 1982 in this framework fishers act as upstream monopolist oligopolists selling whole fish to downstream monopsonistic oligopsonistic fish processors we follow this specification to analyze the rent distribution effect that switching to ifq management has had on a specific fishery the alaskan sablefish fishery in doing so we develop an unobserved components ucs inspired econometric technique to estimate a fixed quantity i e the quantity transacted is exogenously determined bilateral bargaining model in the presence of unobserved reservation prices and potentially time varying bargaining power this technique is general in its formulation and could thus have applicability in other contexts given the wide range of industries for which the bilateral bargaining framework is appropriate the organization of the paper is as follows in the next section we explain how imposing property rights in a fishery through an ifq system may affect the bargaining position of fishers and processors in the ex vessel market in section iii we introduce the general purpose model of bilateral bargaining used in this study and the econometric technique we use to estimate this model we provide some brief background information for the alaskan sablefish fishery in section iv in section v we present and discuss our estimation results and we conclude in the final section ii impacts of ifq management matulich et al 1996 present a theoretical model which is restated in matulich and sever 1999 with both competitive fishing and processing sectors to analyze the effect of ifq management implementation on rent distribution between the two sectors

worker participation and productivity in labor managed and participatory capitalist firms a meta analysis using meta analytic techniques the author synthesizes the results of 43 published studies to investigate the effects on productivity of various forms of worker participation worker participation in decision making mandated codetermination profit sharing worker ownership employee stock ownership or individual worker ownership of the firm s assets and collective ownership of assets workers collective ownership of reserves over which they have no individual claim he finds that codetermination laws are negatively associated with productivity but profit sharing worker ownership and worker participation in decision making are all positively associated with productivity all the observed correlations are stronger among labor managed firms firms owned and controlled by workers than among participatory capitalist firms firms adopting one or more participation schemes involving employees such as esops or quality circles

cooperative oligopoly equilibrium abstract oligopoly cooperation is investigated in an industry with n firms each firm selects its own output we show that such oligopoly problems have the same structure as problems of allocating public goods since each firm views its own output as a private good while viewing the outputs of others as public bads this leads to cooperative oligopoly equilibria which are the lindahl equilibria of the oligopoly model agreements are modeled by the selection of a mechanism or game form which obeys certain axioms under the postulated axioms we show the equivalence of agreed allocations with the set of oligopoly equilibria it is argued that the principle of lindahl agreements may have wider applications

wages employment and capital in capitalist and worker owned firms the authors investigate how worker owned and capitalist enterprises differ with respect to wages employment and capital in italy the market economy with the greatest incidence of worker owned and worker managed firms estimates calculated using a matched employer worker panel data set for the years 1982 94 largely corroborate the implications of orthodox behavioral models of the two types of enterprise co ops had 14 lower wages than capitalist enterprises on average more volatile wages and less volatile employment given the quality of the data set analyzed the authors argue these results can be regarded as having broad generality

firm size and job quality a survey of the evidence from germany small firms provide and create a large proportion of jobs in germany are these jobs worse than jobs in larger firms the mosaic picture that emerges from a review of several recent empirical studies using german individual or firm level micro data shows that all in all wages are lower non wage incomes fringes are lower job security is lower work organisation is less rigid institutionalized possibilities for workers participation in decision making are weaker and opportunities for skill enhancement are worse in small firms compared to large firms the weight of evidence therefore indicates that on average small firms offer worse jobs than large firms it is argued that there is no need for policy measures targeted to improve job quality in small firms because higher incomes in large firms can in part be seen as compensating differentials for more rigid work organisation and can follow from wage policies to reduce shirking and turnover that is more costly in large than in small firms furthermore a lower level of remuneration less protection against dismissals a lower level of workers participation and less opportunities for further training all contribute to lower costs in small firms that might be needed to compensate for size related cost disadvantages compared to large firms economic policy should concentrate on keeping barriers to entrepreneurs entry to markets low to foster new firm formation and creative destruction

from plantations to smallholder production the role of policy in the reorganization of the sri lankan tea sector summary the sri lankan tea sector has changed from one dominated by vertically integrated plantations to one where independent processors of black tea purchase their input green leaf tea from small independent growers this paper provides a unifying conceptual framework to characterize three major factors affecting the changes in vertical coordination arrangements transaction production and management costs regulation and government policy have altered these determinants of organizational change transaction costs have been reduced by state intervention into the price for green leaf which subsequently lowered the risk of processors re negotiating prices downward production costs which continue to be dominated by labor expenses due to the lack of technological developments for harvesting have increased more for plantations than independent producers due to union pressures

self confirming equilibrium and the lucas critique we examine the role of off path superstitions in macro economics and show how a false belief about off path play is the key element underlying both the lucas critique and the game theoretic concept of self confirming equilibrium however the impact of false beliefs in these two cases is different in the lucas case a policy maker s incorrect beliefs about off path play can lead to the adoption of mistaken policy innovation however the consequences of such an innovation provide evidence that the belief that motivated them was wrong in contrast play may never escape an undesirable self confirming equilibrium as the action implied by the mistaken belief does not generate data that contradicts it escape from the self confirming equilibrium requires that players do a sufficient amount of experimentation with off path actions

hours layoffs and unemployment insurance funding theory and practice in an international perspective the strikingly different behaviour of important economic aggregates in the united states and other industrial countries has received surprisingly little attention from economists among recent exceptions however gordon i 982 has shown that wages and hours of work are much more flexible in the united kingdom and japan than in the united states such relative hours variability is confirmed in a macro analysis by capdevielle and alvarez i98i and at micro level by sengenberger and kohler i982 the latter authors are concerned with labour market adjustment within the u s and west german automobile industries between i 97 i and i 980 estimates of the german workeroutput elasticity are found to be less than half that of the united states while the german hours elasticity is twice the united states figure at the national aggregate level capdevielle and alvarez also reveal much greater employment variability in the united states than in most other oecd countries in the years following the i973 74 opec supply shock much in line with these employment hours observations moy and sorrentino i98i argue that after

profit sharing as macroeconomic policy when keynes came to sum up the central message of the general theory for the economics profession in a remarkable but by now long forgotten qje article of 1937 he began with a general philosophical disquisition on the behavior of mankind under uncertainty here as elsewhere keynes made it abundantly clear that he shared frank knight s distinction uncertainty did not mean risk that which is at least in principle reducible to well defined actuarial probabilities by uncertainty keynes intended i believe to convey the idea of ignorance that which is essentially due to insufficient or precarious knowledge of the mechanism by which the future is generated out of the past the keynesian scenario looks out over an economic world that is rife with uncertainty in that world expectations play an important dual role as both a manifestation of uncertainty and a cause of it such expectations are arbitrary to some degree because they can be based on almost anything including self fulfilling expectations of the behavior and expectations of others and as keynes pointed out being based on so flimsy a foundation these expectations of expectations are subject to sudden and violent changes it follows that while there may ultimately be some long run forces drawing it toward full employment capitalism may also have some deep seated tendencies toward shortrun instability unadulterated laissez faire is likely to be out of equilibrium much of the time and even when it is in equilibrium there is no guarantee of being in a good equilibrium whether in a state of bad equilibrium or merely in disequilibrium such coordination failures generate undesirable macroeconomic consequences like unemployment which can cause very significant welfare losses by the ultimate logic of this keynesian worldview then the stage is set for some form of government intervention to recoordinate the economy into a better configuration any such government policy will inevitably introduce some microeconomic distortions but as an empirical matter such losses tend to be small relative to the enormous welfare gains from having an economy operate at its full employment level such general considerations do not indicate the best form of government intervention to stabilize the macroeconomy indeed we do not currently have a general realistic framework within which a meta issue like that might be properly addressed nevertheless it is possible i believe to give some common sense criteria for desirable forms of government intervention it is my contention that economists have not been sufficiently imaginative in devising operational mechanisms or systems possessing advantageous macroeconomic properties the usual fiscal and monetary policies are to my mind sledgehammer like tactics for controlling unemployment and inflation they do the job but clumsily by brute force and they can leave a big mess afterwards i think it is possible to find subtler alternatives that operate more cleanly and with a softer touch by taking a page from the book of adam smith a good mechanism for fighting unemployment and inflation should have several noteworthy characteristics it should be decentralized based on the natural microeconomic incentives of a market like environment it should work more or less automatically keeping to a minimum the need for using discretionary government policy and in a highly uncertain world it should be robust in retaining its desirable macroeconomic characteristics over a wide range of possible situations or circumstances including some that are currently unforseen i want to argue that a superior form of government policy for combating unemploy department of economics massachusetts institute of technology cambridge ma 02139

are family firms good employers family firms employ about 60 percent of the global workforce while it is widely assumed that they are good employers data about their conduct is mixed in this study we extend stewardship and agency theories to test competing propositions about the impact of family on employment practices using data from 14 961 private belgian firms over a 19 year period higher investments lower dividend payout and higher risk tolerance indicate that family firms are better financial stewards of their companies than nonfamily firms however family firms are worse organizational stewards than nonfamily firms they offer lower compensation invest less in employee training and exhibit higher voluntary turnover and lower labor productivity further and contrary to earlier research we find that financial practices in private family firms do not change over time and that the deleterious influence of family on employment practices rises with both firm age and with heightened family involvement together our findings suggest that a more nuanced understanding of stewardship and agency theory is needed to understand the impact of family on the governance of private firms

the incentive effects of dismissals efficiency wages piece rates and profit sharing the relation of several incentive schemes to productivity is studied with a particular emphasis on the effects and determinants of dismissals dismissals turn out to be positively but in a nonlinear way associated with productivity similarly profit sharing raises productivity wages and piece rates are insignificant profit sharing decreases the number of dismissals made by firms copyright 1991 by mit press

internal bargaining labor contracts and a marshallian theory of the firm the theme of this paper is due to alfred marshall who states that nearly the whole income of a business may be regarded as a composite quasi rent divisible among different persons in the business by bargaining supplemented by custom and by notion of fairness and the division of quasi rents entails de facto some sort of profit loss sharing between almost every business and its employees principles of economics 8th ed book vi ch viii sec 10 pp 520 21 marshall emphasizes that a significant portion of composite quasi rent is derived from the organization of business and would be lost if employer employee connections were dissolved in this view bargaining can even be tacit insofar as there is an organizational basis which ensures agreement among the concerned parties consequently internal bargaining models of the firm may be applicable to the analysis of european style codetermination and japanese style labor management also as the relative bargaining strength between labor and management changes such a view of the firm admits as its extrema the organization of a labor managed firm lmf and the textbook case of a profit maximizing firm pmf masahiko aoki 1980 1982 and jan svejnar 1982 have recently explored models of an internal bargaining firm their analyses however consider the firm s long run behavior only under restricted circumstances without market uncertainty the relevance of the internal bargaining approach to profit sharing and labor management would be enhanced if we integrated the firm s short run wage employment policies with its long run plans for the rate of growth and capital labor substitutions this i do by underscoring the firm s organizational basis which is essentially a long term contractual association between workers and management i combine costas azariadis 1975 and martin baily s 1974 apparatus of labor contracting with efficient bargaining to investigate the effect of varying degrees of labor s bargaining power upon the firm s shortand long run policies under uncertainty these results are then contrasted with the empirical findings of collective bargaining for example richard freeman and james medoff 1981 conventional results of lmf models jaroslav vanek 1970 benjamin ward 1958 and the recent macroeconomic approaches to wage employment adjustments ian mcdonald and robert solow 1981

profit related pay prose discovered this paper estimates that in 1984 43 percent of british private sector establishments had some form of profit related pay regression results do not show that these establishments had statistically significant better financial performance cross ta bulations do not suggest that the establishments with income sharing schemes had noticeably greater employment growth or better industrial relations copyright 1988 by royal economic society

some behavioral perspectives on the dominance of hierarchical over democratic forms of enterprise abstract this paper explores possible reasons why participatory modes of organization whole potentially viable and preferable to hierarchical modes for a large majority of workers may be dominated by the latter in capitalist market economies after exploring the developmental preconditions for the evolution of a mature participatory mode using a behavioral approach to organizations it is suggested that since the interest of those possessing scarce managerial skills may lie with hierarchical firms a participatory sector may be uncompetitive unless rights to enter labor contracts are redefined thus the analysis offers a partial explanation of the political nature of the demand for workplace democracy

profit related pay and the u k small firm labour market this paper critically examines the relevance of profit related pay prp for the u k small firm sector since 1986 the u k government has actively encouraged prp which attracts generous tax breaks because it believed that prp would make pay more flexible downwards and would significantly improve employee identification morale and productivity an analysis of the theoretical arguments and the assumptions made regarding the nature of the u k small firm sector that underlay these claims suggests however that the likelihood of achieving either of these alleged benefits is small an appraisal of the available empirical evidence on the practical implementation and operation of prp schemes suggests that the tax relief simply encourages firms to introduce cosmetic schemes that have no appreciable impact upon the behaviour of either firms or employees moreover the experience of some firms that adopted prp schemes indicates that far from increasing morale and productivity prp often creates new tensions and conflict between owners and employees these and other unintended consequences illustrate the inherent difficulties of government attempts to use the tax system to alter the behaviour of agents engaged in a wide variety of complex and very heterogeneous bargaining situations

social mobility and the demand for redistribution the poum hypothesis this paper examines the often stated idea that the poor do not support high levels of redistribution because of the hope that they or their offspring may make it up the income ladder this prospect of upward mobility poum hypothesis is shown to be fully compatible with rational expectations and fundamentally linked to concavity in the mobility process a steady state majority could even be simultaneously poorer than average in terms of current income and richer than average in terms of expected future incomes a e rst empirical assessment suggests on the other hand that in recent u s data the poum effect is probably dominated by the demand for social insurance in the future everyone will be world famous for e fteen minutes andy warhol 1968

evolution and organisational choice in nineteenth century britain this paper offers an explanation for the dearth of labor managed firms in western economies it argues that the historical evolution of labor managed firms put them at a disadvantage relative to their classical capitalist counterparts in britain the government played an instrumental role in creating the initial disadvantage specifically it took too long for the british government to remove the legal burden of unlimited liability and other company laws that were especially costly of labor managed firms early financial instruments were also ill suited to the establishment and continuation of producers cooperatives of the day since organizational forms and their supporting institutions must coevolve a path dependent process has continued to impede the development of labor managed firms c 1993 academic press inc copyright 1993 by oxford university press

can government purchases stimulate the economy this essay briefly reviews the state of knowledge about the government spending multiplier drawing on theoretical work aggregate empirical estimates from the united states as well as cross locality estimates i assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate a temporary deficit financed increase in government purchases i conclude that the multiplier for this type of spending is probably between 0 8 and 1 5 jel e23 e62 h50

reconsidering the initial allocation of itqs the search for a pareto safe allocation between fishing and processing sectors advancement of rights based fishing is stymied by industry and congressional concern over distributional issues arising out of traditional itq design this paper examines the existence and policy feasibility of two alternative initial allocations intended to leave the two principal industry participants the fishers and processors no worse off while maximizing efficiency market structure is shown to be a critical consideration not only to avoid unintended wealth redistribution but also to achieve efficiency

self confirming equilibrium rium path of play thus if a self confirming equilibrium occurs repeatedly no player ever observes play that contradicts his beliefs even though beliefs about play at off path information sets need not be correct we characterize the ways in which self confirming equilibria and nash equilibria can differ and provide conditions under which self con firming equilibria correspond to standard solution concepts nash equilibrium and its refinements describe a situation in which i each player s strategy is a best response to his beliefs about the play of his opponents and ii each player s beliefs about the opponents play are exactly correct we propose a new equilibrium concept self confirming equilibrium that weakens condition ii by requiring only that players beliefs are correct along the equilibrium path of play thus each player may have incorrect beliefs about how his opponents would play in contingencies that do not arise when play follows the equilibrium and moreover the beliefs of different players may be wrong in different ways the concept of self confirming equilibrium is motivated by the idea that noncooperative equilibria should be interpreted as the outcome of a learning process in which players revise their beliefs using their observations of previous play suppose that each time the game is played the players observe the actions chosen by their opponents but that players do not observe the actions their opponents would have played at the information sets that were not reached along the path of play then if a self confirming equilibrium occurs repeatedly no player ever observes play that contradicts his beliefs so the equilibrium is self confirming in the weak sense of not being inconsistent with the evidence by analogy with the literature on the bandit problem e g rothschild 1974 one might expect that a non nash self confirming equilibrium can be the outcome of plausible learning processes this point was made by fudenberg and

trigger strategies in chinese agricultural teams in this paper the reasons why chinese agricultural teams could not reply on the threat of internal effort response to solve incentive problems are investigated the detrimental effects of state extractive agricultural policies the basic needs program and cultural revolution era ideology on the dynamic self enforcing mechanism in chinese teams are analysed using the data on the teams of a moderately prosperous commune during the period 1970 76 the author estimates the discount factor and the impact of the trigger strategies on workers effort decisions it is found that the estimates of the discount factor and the trigger strategy effect are significantly greater than zero in some periods but not large enough to eliminate the need for monitoring

profit sharing and employee share ownership profit sharing and employee share ownership saul estrin paul grout and sushil wadhwani this paper evaluates the likely effects of linking a part of a worker s pay to the employer s profits it has been suggested by weitzman that this would raise employment by lowering the cost of taking on an extra worker however this can only happen if existing workers are willing to let their share of value added fall and experience of those firms in the uk who already operate profit sharing schemes suggests that the weitzman mechanism is not operative there is however some evidence that profit related pay does boost productivity but there are other ways of raising productivity such as performance related pay which may be more effective productivity enhancing effects are likely to be greatest when employees are involved in decision making as well but this is likely to undermine the weitzman case still further even if the argument that profit sharing raises employment is not compelling it is sometimes suggested that it can do little harm however there is evidence that it may well be inflationary in which case the government would be advised to proceed cautiously we argue that there is very little case for the introduction of a permanent subsidy to encourage increased profit sharing although there may be a case for a temporary one to overcome managerial inertia however there is a danger that a subsidy will promote cosmetic schemes designed to be eligible for the subsidy but which do not reflect any real change in behaviour

efficiency and internal organization works councils in west german firms efficiency voice theory has not explained why highly competent managers cannot maintain effective communication without formal or mandatory institutions of l abor s voice powerful west german works councils are negatively rela ted to productivity in the sample suggesting that the best managers can do better without councils however excessive pressure on worker s should encourage both unionization and councils to gain compensatin g differentials and the simultaneous wls tobit estimates also suppor t this effect general productivity benefits from formal voice organi zation are strongly rejected but evaluating welfare efficiency and causality directly requires data on job satisfaction and managerial ability copyright 1987 by the review of economic studies limited

on the incidence of profit and equity sharing theory and an application to the high tech sector abstract profit and equity sharing benefit some firms through improvements in innovation production quality retention of key employees and specific human capital formation the analysis predicts high share contract incidence in the high tech sector a hypothesis supported by survey data collected from small and large high tech firms however externalities associated with this sector s market entry mechanism imply that the optimal level of profit and equity sharing may not have been achieved

works councils and employment growth in german establishments using data from german manufacturing establishments this article examines the relationship between works councils and employment growth taking the endogeneity of councils into account the estimates show a positive growth effect of works councils this suggests that the performance enhancing voice role of german works councils dominates their monopoly role moreover the findings of this study support the hypothesis that workers are more likely to implement a council to protect their quasi rents when the establishment is facing a long term crisis copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

contracting productivity growth in this paper we analyze the interactions between growth and the contracting environment in the production sector allowing incompleteness in contracting implies that viable production relationships for firms and workers and therefore the profitability of industries depend on the rates of innovation and growth the speed at which new innovations arrive in turn depends on the profitability of production for the usual reasons examined in the endogenous growth literature we show that these interactions can have important implications which are consistent with observed phenomena in both the micro and macro environment in particular we demonstrate that a technological shock increasing productivity of research can through this interaction lead to a productivity slowdown and a shift in labor market contracts away from firms providing implicit guarantees of lifetime employment and towards shorter term contractor type arrangements we show the consistency of an increase in the proportion of the labor force under short term employment increased relative returns of workers in high productivity sectors and increased income inequality with a productivity slowdown of finite duration

on the choice of incentives in firms abstract simple models of individual and group incentives under uncertainty are compared and comparative performance is shown to depend upon various exogenous parameters the incentive effects of profit sharing will thus vary with organizational and other characteristics that may be difficult to observe and attempts to quantify productivity effects that neglect selection bias are likely to be misspecified significant selection effects are found in previously used firm level data and productivity effects of existing profit sharing are found to be much larger than potential effects in firms without sharing arrangements this throws doubt on policies to encourage sharing in isolation

information production decisions and intra firm bargaining a firm s factor suppliers often receive private signals which are useful in managerial decision making productive efficiency requires the pooling of such decentralized information however factor suppliers may threaten to withhold private signals in order to secure side payments from the potential beneficiaries of this information j harsanyi s theory of the n person cooperative game is applied to a model where both physical inputs and information can be withheld by factor owners for the special case of a binary decision problem the central limit theorem is used to approximate the harsanyi solution by a linear combination of are as under the standard normal curve copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the determination of r d empirical evidence on the role of unions abstract this paper examines the empirical evidence of the role of union bargaining on innovation we review the existing empirical evidence and emphasis some of the problems with the theoretical assumptions we outline a simple model of strategic rd b the union bargains only over wages

why capital hires labor a bargaining perspective organizational forms often serve as vehicles for the appropriation of quasi rent capitalist firms typically emerge when production requires noncontractible investments in specific physical assets because worker control would divert quasi rents away from ass et owners ex post conversely labor managed firms tend to emerge in niches requiring specialized human capital but general purpose physi cal assets a key result is that capitalist firms can persist in competitive markets even when labor managed firms would yield a larg er total surplus copyright 1993 by american economic association

pricing solutions to the bilateral monopoly problem under uncertainty that uniform pricing solutions to the bilateral monopoly problem are sub optimal is well known see for example scherer 19 and waterson 22 over the years there has been considerable debate in the literature as to what constitutes a correct solution to the static bilateral monopoly problem under certainty this is usefully reviewed in machlup and taber 10 and blair kaserman and romano 3 as the latter paper points out the principal conclusion of this debate is that the solution must involve

the incentive effects of monitoring under alternative compensation schemes abstract this paper examines the marginal incentive effect of monitoring under share and wage payment schemes using various assumptions concerning the risk preferences of workers and the informational content of monitoring signals the direction of this effect is shown to depend critically on the set of assumptions employed furthermore the conditions necessary to generate a positive response of labor effort to monitoring may be restrictive and intuitively unappealing a positive incentive effect is most easily guaranteed under both compensation schemes if monitoring produces an accurate signal of effort with a probability which depends on the level of monitoring intensity implications for the argument that the problem of monitoring dictates efficient organizational form are briefly explored

the contractual nature of the firm for their helpful comments i am grateful to armen a alchian yoram barzel keith leffler john s mcgee and dean worcester 1 ronald h coase the nature of the firm 4 economica 386 1937 the paper however was written several years earlier see note 3 infra 2 the social sciences citation index provides the following information breaking down the period of 1966 80 into three five year periods the total citations of coase s firm paper for each subperiod are 1966 70 17 citations 1971 75 47 citations and 1976 80 105 citations

seniority sectoral decline and employee retention an analysis of layoff unemployment spells we investigate the effect of tenure on employee retention under varying labor market conditions using a competing risks analysis of recall and new job acceptance applied to layoff unemployment spell data from waves 15 and 16 1982 83 of the panel study of income dynamics we find that adverse conditions sectoral employment decline significantly reduce the positive tenure effect on recall probabilities this result is consistent with firm default on delayed payment contracts and does not appear to reflect the effect of technological change on the value of firm specific investments

firm size efficiency and employment a review article s j s book contains much careful and interesting discussion of small firm employment data and related issues and will be read by all workers in the field however it also contains too much detailed quantification and international comparison of doubtful relevance at least for most economists and misses much background material of direct importance for evaluating the role of small firms as a result the authors seriously under estimate the contribution of small business to both employment and efficiency of modern economies as well as the importance of policy to correct the traditional and still pervasive bias towards large organizations

an empirical analysis of the revival of fiscal activism in the 2000s an empirical review of the three fiscal stimulus packages of the 2000s shows that they had little if any direct impact on consumption or government purchases households largely saved the transfers and tax rebates the federal government only increased purchases by a small amount state and local governments saved their stimulus grants and shifted spending away from purchases to transfers counterfactual simulations show that the stimulus induced decrease in state and local government purchases was larger than the increase in federal purchases simulations also show that a larger stimulus package with the same design as the 2009 stimulus would not have increased government purchases or consumption by a larger amount these results raise doubts about the efficacy of such packages adding weight to similar assessments reached more than thirty years ago jel e21 e23 e32 e62 h50

incentives the effect of profit sharing plans offered by previous employers on current wages using national longitudinal survey of youth nlsy data i investigate the relationship between wages and the use of profit sharing plans by current and past employers i find a significant wage effect of profit sharing plans in previous jobs also controlling for past plans eliminates the wage effect of current plans

profit sharing and the financial performance of companies evidence from u k panel data this paper examines the dynamic relationship between profit sharing and profitability in a sample of u k firms during the 1980s the estimates indicate a positive short run effect of the introduction of profit sharing schemes on the financial performance of companies this relationship is evident even if unobserved firm specific fixed effects and potential endogeneity of profit sharing are controlled for quite apart from its widely recognized influence on productivity and industrial relations profit sharing is arguably a financially attractive option for firms there is also evidence of the persistence of profitability in u k profit sharing firms copyright 1994 by royal economic society

the productivity effects of employee stock ownership plans and bonuses evidence from japanese panel data the authors report the first results for japanese firms on the effects of employee stock ownership plans esops and bonuses by estimating production functions using new panel data they find that the introduction of an esop will lead to a 4 5 percent increase in productivity this productivity payoff takes three to four years there is a modest productivity gain from the bonus system the authors also find evidence that the productivity effect of bonuses is enhanced by the existence of esops suggesting that esops may create a climate conducive to profit sharing by enhancing long term commitment and peer monitoring copyright 1995 by american economic association

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

economic science and political influence when policymakers and private agents use models the economists who design the model have an incentive to alter it in order to influence outcomes in a fashion consistent with their own preferences i discuss some consequences of the existence of such ideological bias in particular i analyze the role of measurement infrastructures such as national statistical institutes the extent to which intellectual competition between different schools of thought may lead to polarization of views over some parameters and at the same time to consensus over other parameters and finally how the attempt to preserve influence can lead to degenerative research programs

the effects of improshare on productivity analyzing 112 responses to a 1988 questionnaire sent to all known users of improshare the author estimates the effects on productivity of this gain sharing plan which is being used by a growing number of companies the data indicate that improshare has led to significant increases in productivity the median productivity increase was about 8 in the first year and the cumulative productivity gains had risen to 17 5 by the third year after which they began to level off the mean productivity increases were even greater than the median increases and followed a similar pattern the author finds that a sizable portion of the gains reflects reductions in defect and downtime rates and that firm size was inversely related to productivity gains

moral hazard and risk spreading in partnerships partnerships provide a classic example of the tradeoff between risk spreading and moral hazard the degree to which firms choose to spread risk and sacrifice efficiency incentives depends upon risk preferences for which data are typically unavailable we use a unique dataset on medical group practice to investigate this tradeoff risk aversion leads to compensation arrangements which spread risk through greater sharing of revenues we find that compensation arrangements with greater degrees of revenue sharing significantly reduce physician effort the results imply that changing the method of physician payment from fee for service to capitation will dramatically reduce physician effort

radical political economy and the economics of labor markets this essay is the result of a long process involving many drafts and revisions i am grateful to duncan foley for the careful and constructive criticisms offered throughout the project the following people read the manuscript at different stages and although they often disagreed with me they generously provided helpful comments two anonymous referees for this journal samuel bowles william dickens greg dow robert drago richard edwards kathleen engel richard freeman james galbraith herbert gintis jody hoffer gittel sandfordjacoby tom kochan david levine lisa lynch paul osterman michael piore bob rebitzer gil skilman dan slesnick robert thomas and tsuyoshi tsuru comments from participants in seminars at the massachusetts institute of technology university of massachusetts at amherst and hitotsubashi university are also gratefully acknowledged