Economics Department

Working Papers in Economics

Art
<Previous Article Next Article>

TITLE:
Does Employee Ownership Improve Incentives for Efforts?

AUTHOR(S):
Chong-en Bai, Boston College
Chenggang Xu , London School of Economics

DOCUMENT TYPE: Article

ABSTRACT:
This paper provides a theoretical framework to analyze workers' incentives under different ownership. It shows that the workers' effort and expected income are higher and the monitoring intensity is lower in the employee-owned firm than in the capitalist firm. Unlike in previous models, the advantage of employee ownership here does not depend on the size of the firm. It also shows that the advantage of employee ownership increases as workers' reservation wage decreases, the monitoring cost and productivity uncertainty increases. Finally, it discusses the relevance of the theory to employee stock-ownership program (ESOP) and profit sharing.