Internal Rent Seeking, Works Councils, and Optimal Establishment Size

Michael Beckmann and Matthias Kräkel

Working papers from Faculty of Business and Economics - University of Basel

Abstract: Using a microeconomic model and data from the Establishment Panel of the German Institute for Employment Research, we analyze the optimal establishment size against the background of rent-seeking workers and the influence of works councils. The theoretical part shows that establishment size has a discouragement effect on the level of individual rent seeking but also a quantity effect as the number of rent seekers increases. The interplay of both effects - together with technological considerations - determines whether the employer chooses an inefficiently small or large establishment size. Introduction of a works council restores efficient establishment size although it is purely used as rent-seeking device. Whether the employer benefits from a works council or not, depends on the degree of contract incompleteness and the degree of worker coordination via a works council. The empirical part indicates dominance of the discouragement effect over the quantity effect in establishments without works council. As theoretically predicted, works councils are beneficial by disentangling rent-seeking and production issues, thus eliminating the influence of the two rent-seeking effects.

Keywords: establishment size; rent-seeking; works council (search for similar items in EconPapers)
JEL-codes: J51 J52 J53 L25 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-bec
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://edoc.unibas.ch/server/api/core/bitstreams/ ... e1861100e318/content (application/pdf)

Related works:
Journal Article: Internal rent seeking, works councils, and optimal establishment size (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bsl:wpaper:2011/14

Access Statistics for this paper

More papers in Working papers from Faculty of Business and Economics - University of Basel Contact information at EDIRC.
Bibliographic data for series maintained by WWZ ().