Workers’ Effort: A Comparison between Capitalist and Cooperative Firms

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.