On the theory of a participatory firm

Svejnar, Jan

Firms in which several different actors (or groups of actors)’ jointly determine company policy have come into existence in an increasing number of countries.2 Yet, with the exception of Steinherr’s (1977) model, the existing theories of the firm generally do not reflect the institutional framework of a participatory firm. This paper presents two theoretical models of such a firm. The approach is quite general and nests the established theories of the firm as limiting cases. Employee participation in management has been instituted primarily by law and in countries with a strong trade union movement.3 For this reason, possible influences of different systems of labor relations and trade union structures on the behavior of a participatory firm need to be explored. In this context it is shown that two different realistic assumptions about the objective functions of the relevant actors (or groups of actors) lead to strikingly different results in terms of the social efficiency of factor allocation. This finding is significant not only for the theory of a participatory firm but also for the theoretically limiting cases of a fully labor-managed firm or a traditional capitalist firm under collective bargaining.


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Also Published In

Journal of Economic Theory

More About This Work

Academic Units
International and Public Affairs
Published Here
July 12, 2016