Co-Determinatin and Efficiency

Felix R FitzRoy and Kornelius Kraft

CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: We present a new model of employee involvement with incomplete contracts and uncertain monitoring. Distributional considerations limit productivity and generate excessive monitoring under employee control, so co-determination can increase both efficiency and labour's share of the enterprise surplus. Our simple model suggests parity co-determination is optimal. We test the 1976 co-determination law with a panel of West German firm data. Although our samples contain severe recessions when labour hoarding costs of co-determination are highest, and are too short to capture the long run benefits, we find none of the adverse efficiency effects of co-determination or parity change claimed by critics.

Keywords: Co-determination; employee involvement; productivity (search for similar items in EconPapers)
JEL-codes: D2 J5 L2 (search for similar items in EconPapers)
Date: 1998-10
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Persistent link: https://EconPapers.repec.org/RePEc:san:crieff:9807

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