The Economic Analysis of Labour‐managed Firms*

Labor-Managed Cooperatives and Private Firms in North Central Italy: An Empirical Comparison

“…The bestknown prediction is that in the short run, and possibly in the long run, the cooperative firm will decrease, rather than increase, employment following an upward demand shift, and so its output will fluctuate counter-cyclically. This effect arises from the incentive for the cooperative firm to restrict output following an improvement in market conditions so as to increase earnings for the existing work 1 See Ireland and Law (1982), , Bartlett and Uvalic (1986), and Bonin and Putterman (1987). The literature is set in the context of an idealized "labor-managed firm."…”

Process innovation and the persistence of monopoly with labour-managed firms

“…On the one hand, if partnership and labour force do not coincide, the maximization of value added is obtained through the adjustment of variables that include the size of labour force itself. This yields the well known "perverse" behaviour of labour-managed …rms in response to a price increase in the output market (see, inter alia, Vanek, 1970;Meade, 1972;Ireland, 1987; Cremer and Cremer, 1992; Delbono and Rossini, 1992;Stewart, 1991 and1992;Lambertini, 1996;Lambertini and Rossini, 1998). On the other, an enterprise whose workers are the residual claimants over …rm's income, i.e., where they coincide with partners by statute, is not subject to this "perversion" in that the size of the partnership/labour force is not among the variables being adjusted to maximize value added.…”

“…This is still another argument pointing at the by now well known issue of labour-managed …rms' ine¢ciency or "perversion", making the labour-managed …rm a lesser competitor to a pro…t-maximizing …rm, than a unit of the same nature would prove to be. This has been highlighted by the existing literature under several respects (see Ireland, 1987;Delbono and Rossini, 1992;Okuguchi, 1993;Lambertini, 1996;Lambertini and Rossini, 1998), one being particularly worth mentioning, namely, the di¤erent reaction of a pro…t-maximizing …rm to the threat of entry. Horowitz (1991) and Stewart (1991) stress that a labour-managed unit is somewhat a lesser evil to a pro…t-maximizing enterprise than the latter is to the former, and this entails that a pro…t-maximizing …rm would always prefer to coexist with a relatively less aggressive labour-maximizing counterpart than with a rival of her kind.…”

Spatial competition with profit‐maximising and labour‐managed firms

“…This is the case of managerial firms maximising a weighted average of profits and sales (see Vickers 1985;Fershtman and Judd 1987, inter alia) and labour-managed firms maximising value added per worker. Established wisdom on labour-managed firms in particular highlights an inappropriate behaviour of such firms in response to a price increase in the output market (for an overview, see Ireland 1987). This, along with the undercutting incentive characterising Hotelling's model, has prompted the investigation of equilibrium in a spatial market, where at least one firm is labour-managed.…”