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Ownership, incentives and monitoring

Chong-En Bai and Cheng-Gang Xu

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper studies the effect of ownership structure on workers’ incentives for investing in firm-specific human capital. Particularly, we analyse such incentives 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)
JEL-codes: D23 J54 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2001-03
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Working Paper: Ownership, Incentives and Monitoring (2001) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:3750

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