LONG-TERM EMPLOYMENT RELATIONSHIPS BY CREDIBLE COMMITMENTS

Martin Abraham and Bernhard Prosch

Rationality and Society, 2000, vol. 12, issue 3, 283-306

Abstract: Carl Zeiss, a famous German firm, was among the first companies to provide employee benefits. Its sole owner, a foundation known as the Carl-Zeiss-Stiftung, promised a century ago to fulfill almost revolutionary social-welfare obligations to company workers. Can this promise be explained within a model of rational behavior? Using game theory, the relationship between employer and employee can be reconstructed as a Prisoner's Dilemma, in which both sides are interested in future cooperation but have incentives to terminate the relationship opportunistically. One possible solution is the implementation of institutionalized self-commitments; that is, a pension fund and severance pay are `hostages' that serve as incentives. Analysis indicates that the Carl-Zeiss-Stiftung can be seen as a historical example of a private-sector organization that committed itself to providing benefits to solve a basic cooperation problem. The foundation's statute provides incentives for the both employer and employees to establish a long-term employment relationship. In fact, this was exactly the intention of the founder, Ernst Abbe.

Keywords: employment relationship; foundation; game theory; private institutions (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ratsoc:v:12:y:2000:i:3:p:283-306

DOI: 10.1177/104346300012003002

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