| By: |
Gregory K. Dow (Simon Fraser University);
Gilbert L. Skillman (Wesleyan University) |
| Abstract: |
Recent writers have asserted that firms controlled by workers are rare because
workers have diverse preferences over firm policies, and thus suffer from high
transaction costs in making collective decisions. This is contrasted with
firms controlled by investors, who all support the goal of wealth
maximization. However, the source of the asymmetry between capital and labor
has not been clearly identified. For example, firms could attract labor inputs
by selling transferable shares, and well-known unanimity theorems from the
finance literature carry over to models of this kind. We resolve this puzzle
by arguing that because financial capital is exceptionally mobile, capital
markets are sufficiently competitive to induce unanimity. The lower mobility
of human capital implies that labor markets are monopolistically competitive
and hence that unanimity cannot be expected in labor-managed firms. Moreover,
such firms are vulnerable to takeover by investors while capital-managed firms
are substantially less vulnerable to takeover by workers. |
| Keywords: |
capitalist firms, labor-managed firms, collective choice, preference heterogeneity, unanimity, voting, membership markets, control rights |
| JEL: |
D1 D2 D3 D4 |
| Date: |
2005–09–09 |
| URL: |
http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0509003&r=cdm |