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CREDIT MARKET IMPERFECTIONS AND THE INCIDENCE OF WORKER‐OWNED FIRMS
Author(s) -
Bowles Samuel,
Gintis Herbert
Publication year - 1994
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.1994.tb00020.x
Subject(s) - agency (philosophy) , democracy , function (biology) , economics , business , agency cost , labour economics , market economy , finance , corporate governance , philosophy , epistemology , evolutionary biology , politics , political science , law , biology , shareholder
Under plausible conditions, in a market economy with both democratic and capitalist firms, credit market imperfections imply that the fraction of workers in democratic firms is an increasing function of the share of worker wealth. Our analysis addresses two agency problems that all firms must solve: eliciting effort from a team of workers and choosing the appropriate level of risk, in a situation where neither effort nor risk is contractually specified. The democratic firm enjoys a relative advantage in dealing with the agency problems surrounding labor, while the capitalist firm has a relative advantage in dealing with agency problems involving risk‐bearing.