Abstract

The purpose of this paper is to compare the efficiency of capitalistic and cooperative firms by focusing on the workers’ effort in production activity, when this effort is only known to workers, thus causing information asymmetries between workers and managers of both types of firms. Therefore, our model uses a principal-agents framework with workers’ hidden actions. The agency relations are not centered on the optimal design of incentive mechanisms but on the efficient (albeit incomplete) managerial monitoring of workers’ private effort. Moreover there is a trade-off between this monitoring activity and another managerial activity, i.e. the organization of production processes. We show that, taking into account the information asymmetries that characterize our model, the cooperative firm requires less monitoring than the capitalist firm to achieve the same efficient level of workers’ effort. This allows the manager of the former firm to devote more working time to organizational activity than the manager of the latter firm. In this respect, the governance of the cooperative firm dominates that of the capitalist firm. However, both types of firms need capital to operate and face different financial constraints in terms of the capital’s purchasing cost. These financial constraints affect the cooperative firm more severely than the capitalistic firm. Our conclusion is that these two types of firms have specific strengths and weaknesses, which make it difficult to reach general analytical results in terms of their relative efficiency. Additionally, the financial constraints characterizing the cooperative firm hinder maximization of its long-term growth rate; on the other hand, this kind of firm can better exploit the virtuous circle between increases in the employment level and increases in the growth rate.

Highlights

  • Cooperative firms have played and continue to play a major role in the world economy

  • One of the most detrimental effects of this approach has been the disappearance in recent economic theory of an analysis that emerged in the late 1950s [10] and developed during the 1970s and 1980s: the comparison between cooperative and capitalist firms in terms of organization and their respective degree of efficiency

  • All the progress made in microeconomic theory around those years [22]-[25] and the related criticism leveled at the neo-Walrasian program were applied more to the capitalist firm than to the cooperative

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Summary

Introduction

Cooperative firms have played and continue to play a major role in the world economy. All the progress made in microeconomic theory around those years [22]-[25] and the related criticism leveled at the neo-Walrasian program were applied more to the capitalist firm than to the cooperative In this respect, it is quite instructive to refer to the literature on agency costs and market failures based on imperfect or asymmetric information [26]-[30]. The consequent definition of the firm as a complex organization characterized by the internalization of a set of contractual nexus and their subordination to hierarchical relations (principle of authority) made the concepts of property rights and governance crucial This offered a stronger theoretical justification for the coexistence of different kinds of firms in the market. It will be sufficient to show that the results achieved, albeit still not a solution, are interesting and lead to a number of more immediate extensions of our model

Framework
Model: The Capitalist Firm
Model: The Cooperative Firm
Comparing the Two Kinds of Firms
Financial Aspects and Extensions of the Model
Findings
Conclusions
Full Text
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