A Discriminating Share System

Franco Cugno and Mario Ferrero
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Franco Cugno: University of Torino

Chapter 9 in Share Systems and Unemployment, 1991, pp 97-110 from Palgrave Macmillan

Abstract: Abstract The discussion in previous chapters has driven us to the conclusion that a revenue sharing system is fundamentally unstable: as the share contract is not a privately optimal contract, it has an inbuilt tendency to degenerate into a de facto wage system which preserves only the façade of a sharing arrangement but none of its hoped-for macroeconomic properties. The underlying reason is that it is not possible (and arguably, in some respects, not even desirable) to crush the insiders’ power from the outside, that is, to implement that complete divorce between sharing in income and sharing in decisions that is a prerequisite for the proper working of Weitzman’s model. If we could trust compensation parameters to become perfectly flexible, as in Weitzman’s long run, then they would always find their efficient equilibrium values, and, as we showed in Chapter 6, employment-restraining agreements would no longer be feasible — but then there would no longer be any reason to search for sharing arrangements. We must rather come to terms with the fact that compensation parameters are embedded in contracts at least in the short run, and these contracts cannot but reflect the employed workers’ bargaining power. Can a compensation arrangement be devised which mimics parameter flexibility but at the same time somehow makes allowance for the hard fact of insider power?

Keywords: Reservation Wage; Share System; Fixed Wage; Wage System; Sharing Arrangement (search for similar items in EconPapers)
Date: 1991
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-11530-3_9

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DOI: 10.1007/978-1-349-11530-3_9

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