Abstract
AbstractThe relationship between firms’ owners and managers is a quintessential example of costly principal–agent interaction. Optimal design of monetary incentives and supervision mechanisms are the two traditional ways of reducing agency costs in this relationship. In this paper, we show evidence which is consistent with a third mechanism: firms have managers whose economic preferences are aligned with owners' interests. We uncover differences in economic preferences between managers employed in firms controlled by two distinct classes of ‘patrons’: employee-owned firms (worker cooperatives) and conventional investor-owned firms. In a high-stakes lab-in-the-field experiment, we find that co-op managers are less risk-loving and more altruistic than their conventional counterparts. We do not observe differences between the two groups in terms of time preferences, reciprocity, and trust. Our findings are consistent with existing evidence on worker cooperatives, such as their tendency to self-select into less risky industries and their compressed compensation structures.
Highlights
A long tradition in economics, management, and organization studies conceptualizes the relationship between managers and firm owners using a principal–agent framework (Jensen and Meckling, 1976)
We find that co-op managers are significantly more likely to implement the perfectly egalitarian allocation than conventional managers
We are interested in understanding whether managers employed in cooperatives exhibit different economic preferences than managers employed in conventional enterprises
Summary
A long tradition in economics, management, and organization studies conceptualizes the relationship between managers and firm owners using a principal–agent framework (Jensen and Meckling, 1976). We conduct a lab-in-the-field experiment to gather incentive-compatible measures of risk preferences, time preferences, and social preferences (altruism, reciprocity, and trust) from 196 Uruguayan managers Half of these managers work in worker cooperatives and the other half in conventional private-sector firms. As pointed out by Atkinson (1973), this omission may be due to the longstanding practice of assuming that worker cooperatives coherently pursue a single objective of maximizing income per worker This assumption rules out the problem of separation of ownership and control arising in any large (conventional or cooperative) firm operating under the control of appointed managers, rendering the issue of managerial behavior of only secondary analytical importance.
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