Economic Growth in a Cooperative Economy

Thomas Brzustowski and Francesco Caselli

No 2101, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: We develop and formalize an equilibrium concept for a dynamic economy in which production takes place in worker cooperatives. The concept rules out allocations of workers to cooperatives in which a worker in one cooperative could move to a different cooperative and make both herself and the existing workers in the receiving cooperative better off. It also rules out allocations in which workers in a cooperative would be made better off by some of the other workers leaving. We also provide a minimum-information equilibrium-selection criterion which operationalizes our equilibrium concept. We illustrate the application of our concept and operationalization in the context of an overlapping-generation economy with specific preferences and technology. The cooperative economy follows a dynamic path qualitatively similar to the path followed by a capitalist economy, featuring gradual convergence to a steady state with constant output. Quantitatively, however, the cooperative economy features a static inefficiency, in that, for a given aggregate capital stock, firm size is smaller than what a social planner would choose. On the other hand, the cooperative economy cannot be dynamically inefficient, and could accumulate capital at a rate that is higher or lower than the capitalist economy. We also present an illustrative calibration which quantitatively compares steady-state incomes in a cooperative and in a capitalist economy.

Pages: 48 pages
Date: 2021-01
New Economics Papers: this item is included in nep-hme
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