Some Anomalies in the Production Strategy of a Labour-Managed Firm

Abstract

however, been given to the appropriate objective function of a labour-managed cooperative firm. In this paper we show that the conventional formulation of the objective function is incompatible with a homogeneous production function. More precisely, we prove that a labour-managed firm with a production function homogeneous of degree A 1 the level of output depends only on the degree of homogeneity and is otherwise independent of the structural form of the production function. In particular, the level of output is independent of the price of capital. This last result also holds if the production function is homothetic. Although these shortcomings apply specifically to homogeneous production processes, the use of such production functions is so widespread that any objective function of a firm which is incompatible with them significantly reduces its analytical usefulness. Consequently, we think that further research in the theory of labour-managed firms will require a reformulation of the objective function in order to remove this anomaly.