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Ownership, incentives and monitoring

By Chong-En Bai and Cheng-Gang Xu

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

Topics: HD Industries. Land use. Labor
Publisher: Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science
Year: 2001
OAI identifier: oai:eprints.lse.ac.uk:3750
Provided by: LSE Research Online

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