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Ownership, Incentives and Monitoring

Chong-En Bai and Chenggang Xu

STICERD - Theoretical Economics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

Abstract: This paper studies the effect of ownership structure on workers' incentives for investing in firm-specific human capital. Particularly, we analyse such incentivers and monitoring under employee ownership and capitalist ownership. In our model, the employee-owned firm is a firm bought by its workers who pay the competitive price. Under certain conditions, we show that the workers' investment and expected income are higher and the monitoring intensity is lower in an employee-owned firm than they are in a capitalist firm. We also show that the incentive effect of employee ownership increases as a worker's reservation wage decreases, as the monitoring cost or as the productivity uncertainty increases. Most of our results are consistent with the available empirical evidence

Keywords: Employee ownership; monitoring; incentives; property rights (search for similar items in EconPapers)
Date: 2001-03
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Persistent link: https://EconPapers.repec.org/RePEc:cep:stitep:413

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