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Capitalism Needs Risk‐, not Profit‐Sharing
Author(s) -
GRUBEL HERBERT G.
Publication year - 1987
Publication title -
kyklos
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.766
H-Index - 58
eISSN - 1467-6435
pISSN - 0023-5962
DOI - 10.1111/j.1467-6435.1987.tb02670.x
Subject(s) - profit sharing , moral hazard , welfare , business , profit (economics) , sharing economy , risk management , capitalism , economics , industrial organization , microeconomics , public economics , finance , market economy , incentive , computer science , politics , world wide web , political science , law
SUMMARY The analysis of general risk‐sharing systems shows that profit‐sharing represents a special case of the more general systems. General risk‐sharing systems are more efficient than profit‐sharing systems in that they permit contracting parties to exclude or treat differently certain types of risk, especially those which are endogenous to the firm and its management and therefore subject to moral hazard. Most important, general risk‐sharing systems make it possible to exclude the returns from entrepreneurial risk‐taking from share arrangements with workers. This feature makes general risk‐taking consistent with the efficient operation of dynamic SCHUMPETERian market economies. Risk‐sharing systems can also be used to increase the efficiency of contracts between parties other than employers and employees and they are most likely to raise welfare when one of the contracting parties is the government.