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.
This outcome represents a missed opportunity. Attention to agency costs and market failures put the focus back on Coase’s framework [
The presence of “incomplete contracts” and the designation of the firm as a “collection of physical activities” that represent the main components of the Hart-Moore [
In this context, governance can be defined as the system of rules and constraints that shapes firm’s activities which are not guaranteed by external rules and contracts (i.e. contracts are incomplete). Such rules and constraints refer to decisions and ex ante negotiations as well as to monitoring and ex post distribution of the net income (cf. [
The purpose of this paper is to establish a comparison between these two kinds of firms by focusing on workers’ effort during the productive activity in a model where owners and/or managers suffer from information asymmetries. In the part dedicated to the cooperative firm (limited here to a cooperative of “production and work”; cf. infra), this comparison is interlaced with the assessment of costs and opportunities connected with the participation of workers in the firm’s capital. In our model, agency relations do not mainly pertain to the design of incentive mechanisms but rather the setting of an efficient form of monitoring, centered on management control (albeit incomplete) of workers’ effort during production. What emerges is that acquisition of ownership shares by each worker in the cooperative firm can reduce the efficient level of monitoring worker activity and increase the financing costs of productive capital. We conclude that, compared with the capitalist firm, the cooperative firm has efficiency advantages in terms of organizational activity but shows inefficiencies in capital acquisition.
To prove this conclusion, we first examine the objective functions of the two different firms (capitalist and cooperative) and specify the main assumptions characterizing the model (Section 2). It thus becomes possible to specify the problem of optimization in the capitalist firm with respect to the amount of managerial monitoring of worker activity as well as to the employment level (Section 3), and the analogous problem of optimization in the cooperative firm with respect to the amount of managerial monitoring and to the share of firm profits allocated to reserves (Section 4). The equilibrium conditions, which depend on the solution of these two problems of constrained maximization, provide a new approach to comparing the efficiency of these two types of firms.
This comparison leads to the result specified above: it does not allow us to establish whether the governance and organization of one of the two firms are more or less efficient with respect to those of the other (Section 5). As will be discussed in Section 6, to achieve a more precise overall result, we would need to extend our model to analyze the financial aspects of the two firms. However, the formalization of this extended model would require complex descriptive and analytical work exceeding the limits of this paper. It will then 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.
As suggested in the Introduction, the main differences between capitalist and cooperative firms can be stated by different forms of ownership and governance. Furthermore, since the 1990s, the economic literature has shown that different types of ownership and governance lead to different forms of corporate organization and control [
Besides reducing the two kinds of firms to a representative capitalist firm and a representative cooperative firm, our model makes the following assumptions:
1) no separation between firm ownership and firm management, so the capitalistic firm is an entrepreneurial firm and the cooperative firm is an organization of “production and work”;
2) the two types of firms, which operate in a market economy and are in competition, have the same technical production function and produce the same good;
3) the capitalist firm pursues the objective of maximizing its expected profits in the short term, while the cooperative firm aims to guarantee stable employment and an adequate income for its members through the entire period of their working life, maximizing long-term growth;
4) the owner of the capitalist firm holds the amount of capital required for the production process and can either utilize or sell it, while the cooperative firm has to purchase capital on the market;
5) workers’ compensation cannot be contingent on their effort since the latter is private information, and thus monetary wages are exogenously fixed at a set amount;
6) workers of both firms intend to maximize expected utility by supplying the lowest effort;
7) the entrepreneur of the capitalist firm and the manager of the cooperative firm are endowed with a set amount of effort usable either for organizing and managing the firm or monitoring worker activity;
8) worker effort is a stochastic increasing function of the managerial effort allocated to monitoring.
Assumption 1) implies that we neglect the possible problems of control which depend on different “agency relations”, i.e. we put aside the problem of separation between firm ownership and management as well as the possible conflicts between majority and minority shareholders.6 The owner of our capitalist firm, who holds the residual rights of control over production outcomes, also acts as the manager: she is responsible for the firm’s organization and the management of worker activity. The capitalist firm is thus assimilated to the entrepreneurial initiative. On the other hand, we bring the cooperative firm back to the “purest” form of mutuality―the organization of “production and work” in which all the workers are, pro quota, owners and collectively share the responsibility for their activities.7 To simplify the comparison with the capitalist firm, we assume that the manager of the cooperative firm does not belong to the set of owner-workers. However, this does not imply a separation between firm ownership and firm management since the owner-workers select the external manager on the basis of her acquired experience in the cooperative world and her adherence to cooperative principles. Hence, in the capitalist firm, there is an owner-manager (m = 1) and N workers and the only agency relation is between m and N; on the other hand, in the cooperative firm, there are N workers directly employed in the production process who are owners and who select an external pro tempore manager sharing cooperative objectives (m = 1).
Assumption 2) above builds a benchmark case based on the temporary exclusion of the problems and costs related to the monitoring of workers’ activity. Thus the capitalist and cooperative firms have the same production function. Each worker is endowed with a maximum capacity of effort (
where
Since both firms operate in a market economy and are in competition, they have to comply with factors of efficiency and competitiveness. Assumption 3) above implies that the capitalist firm satisfies these two constraints by pursuing the objective of maximizing its expected profits in the short term―that is, the difference between current revenues and costs. The same assumption implies, on the other hand, that a cooperative firm aims to guarantee stable employment and an adequate income for its members throughout their working lives. Moreover, the cooperative firm aims for intergenerational fairness, often pursued by means of the “free entry” principle for new, young, and qualified members [
The output of each of the two firms is the quantity (Q) of a given good, which is the only one produced in the economic system. The supply price of this good is normalized to 1. Given assumption 4) above, the two firms face different constraints for starting their specific production process. At first glance, the capitalist firm only incurs the direct labor costs (w N) since the entrepreneur (owner) already holds the required capital (K). The cooperative firm, instead, has to purchase the amount of capital required for its production process on the market. As stated above, we assume here that each employee of the cooperative firm becomes an owner-member by buying a share (K/N of the capital K for a value equal to
In the benchmark case analyzed here, i.e., when workers are independently controlled and thus supply their optimal effort without costly monitoring, the expected profit of each of the two firms is the same and equal to:
At the end of the production process, the owner of the capitalist firm has the right to take possession of the whole amount of profit made by the firm; each owner-member of the cooperative firm, instead of the portion 1/N of the realized profit, obtains only 1/N of the difference between this profit and the stocked reserve.
In our model, the crucial problem is establishing whether (1) and (2) can be implemented when there is a standard problem of information asymmetry between owners and workers with respect to the effort supplied by the latter. In the literature, this kind of problem is solved by applying incentive schemes or imperfect monitoring schemes on worker activities (see, for instance, [
The easiest way to introduce such a scheme is to maintain that, in both the firms in question, each worker obtains a utility
for each
Equation (3) implies that, with asymmetric information and without a monitoring scheme, the limit would be
Since the entrepreneur is the sole owner of the capitalist firm, hence the only one who benefits from the entire amount of profits, she does not need any specific incentive to supply her maximum effort. That said, we should also assume that the entrepreneur is compensated with a remuneration s (with
The above considerations show that in (1), we established a relation between
with
where
Equation (4) represents a sort of simplified version of the OR type production function (an “O-Ring function”) (see [
To simplify the solution of this problem, assumption 8) also states that
with
For the sake of simplicity, we assume that
Equation (5bis) implies that the production function of the two firms, expressed by Equation (4), and the worker’s direct utility, expressed by Equation (3), can be respectively re-written as:
with
Given the framework described in the previous section, it is possible to solve the maximization problems expressing the respective objective function of the two firms in question.
We start from the capitalist firm reduced to an entrepreneurial initiative. It is assumed that this firm pursues maximization of its short-term expected profit, i.e., maximization of the difference between current revenue and current monetary cost. The available capital (K) is given and fully depreciated in a single production process; therefore, the technical coefficient of production is:
The constrained maximization problem is:
and the Lagrangian becomes:
To find the optimal value of N and
From this derivative, we obtain the value for the Lagrangian coefficient:
Another function to be maximized relates to the optimal choice concerning the amount of labor units (N):
This derivative leads to:
The third and last first order condition relates to the maximization of L with respect to the coefficient
From this derivative, we obtain the optimal value of the managerial effort to be allocated to firm organization rather than to monitoring workers:
with
It is possible to offer an economic interpretation of the equilibrium conditions deriving from the solution of the constrained maximization problem.
The first equilibrium Equation (10) determines the optimal level of employment in the capitalist firm as a function of labor productivity that, in turn, depends on the managerial effort devoted to firm organization and on monetary wage. Equation (10) can also be rewritten as:
Equation (10bis) underlines that the optimal amount of labor units to be employed in a capitalist firm is the amount that equalizes the marginal revenue to the marginal cost. The marginal revenue is equal to the marginal
productivity of labor (
The second equilibrium Equation (11) determines the optimal amount of managerial effort to be spent organizing the firm. This equation can also be written as:
Equation (11bis) shows that the optimal amount of managerial effort to be spent monitoring workers depends directly on the wage w and, inversely, on the following variables: the unit coefficient of the disutility associated to workers’ effort (
The economic interpretation of the direct relationship between w and (
The economic interpretation of the inverse relations between
Equation (11) can be rewritten differently from (11bis) as:
Equation (11ter) suggests a much more intuitive economic interpretation than (11bis): it reproduces a typical condition of the theory of efficiency wages.17 The worker fixes his equilibrium effort in order to make it equal to the marginal increase in his utility (expressed by wage) and the marginal increase in the cost of the supplied effort (expressed by
Beyond their variations and their specific economic interpretation, the two equilibrium Equations (10) and (11) show an important basic element. In the capitalist firm examined, the entrepreneur incurs a cost to determine the optimal level of employment and the optimal amount of monitoring workers’ activity: in order to achieve this result, the entrepreneur has to limit the effort allocated to the organization of the firm, which would increase its output. Hence, the activity of the capitalist firm is actually compelled to a trade-off: given that the entrepreneur has an available amount of effort normalized to 1, this amount has to be divided between monitoring workers and organizing the firm. If the entrepreneur had been able to check on the workers’ effort without a costly monitoring effort, these workers would have been forced to supply their maximum effort and the entrepreneur would have had the option to concentrate all effort on the firm’s organization. However, the presence of information asymmetries makes this hypothetical equilibrium (partly described by Equation (1), above) impossible to attain. Hence, the optimal equilibrium of N and
Analysis of the activity of the cooperative firm, offered in the next section, aims to establish the cost of the trade-off described above and other possible costs incurred by this kind of firm. It will then be possible to compare the relative efficiency of the two types of firms with respect to the monitoring of worker effort and managerial organizational effort, as well as other possible costs.18
To complete the analysis of the variables determining the workers’ choice of effort in the cooperative firm, three new factors have to be introduced.
The first factor was partly examined in Section 2. To become an owner-member of the cooperative firm, each worker has to buy a share of the capital on the market, i.e.,
On the other hand, having been borne by each worker of the firm, this cost can also represent a cost-opportu- nity for the workers themselves. In this respect, let us assume that there is an alternative allocation of η able to assure a riskless rate of return equal to r. The utility function of the single worker of the cooperative firm must then have a value at least equal to that of the reserve utility
with 0 < r < 1.
The second factor is based on another aspect that we have highlighted several times: in the cooperative firm, workers are also owners, so they take possession of the distributed profits. Nevertheless, we have to remember that this kind of firm is characterized by the mutuality principle, and a fundamental component of this principle is based on the fact that the cooperative firm allocates most of its realized profits to a reserve fund and then the residue to drawbacks.19 Indeed, since the cooperative firm has the objective of fulfilling optimal long-term growth, it aims to maximize the share of its profits assigned to the reserve fund, under the constraint of assuring drawbacks compatible with the utility function of their worker-members. Let
his share of profits
Not even the previous expression represents the complete form of the expected utility function of each worker of the cooperative firm. Indeed, this expression has to be integrated with another component of the mutuality principle that has been treated by Sen [
with
Equation (13) can be rewritten as:
with
Equation (14) is based on the fact that
Given these considerations, the problem of the constrained maximization problem of the cooperative firm is given by:
where:
Therefore, the Lagrangian function is:
One of the first order conditions concerns the maximization of L with respect to the reserve to be stored:
It follows that the value of the Lagrangian coefficient is:
Offering formal confirmation of what is already realized by
Once the value of the Lagrangian coefficient is determined, we can specify a second condition of the first order by maximizing Lwith respect to the amount of management effort allocated to the organization of the cooperative firm (
Given Equation (16), we determine the optimal level of
The last first order condition concerns the derivative of L with respect to the Lagrangian coefficient
It follows that the optimal value for the profits share to be stored as reserve is:
Let A denote the profit obtained by the cooperative firm for each employee, B the monetary wage received by each worker net of the effort supplied, C the opportunity cost borne by the worker to become member of the firm. Then:
It follows that Equation (18) can be rewritten as:
Equation (18bis) indicates that the cooperative firm finds it optimal to keep in reserve that share of the realized profits making the additional utility obtained by the owner-worker and his reserve utility equal.
The solution of the constrained maximization problem of the cooperative firm thus leads to the determination of the two equilibrium Equations (17) and (18). The latter equations show that, as in the case of the entrepreneur in the capitalist firm, the worker-owners of the cooperative firm also face a trade-off in order to determine the optimal share of profits to be stored as reserve and the optimal level of monitoring effort to be allocated to worker activity. If worker effort had been equal to 1 even without monitoring, the manager of the cooperative firm would have maximized her organizational effort. However, the presence of information asymmetries makes this hypothetical equilibrium (partly described by Equation (1), before) unattainable. Hence, the manager pro-tempore is obliged to limit the effort allocated to organizing the firm in order to monitor the workers. This limitation has a negative impact on the productivity and output of the cooperative firm. Moreover, if worker-owners gave up their rights to take possession of a positive share of the profits, the cooperative firm would employ all its resources for long-term growth and employment. However, the opportunity cost borne by worker-owners to buy their individual share of capital does not allow this kind of equilibrium. Therefore, as owners, workers limit the firm’s potential for long-term growth by taking possession of profit shares in the form of drawbacks.
As a result, the optimal equilibrium of
The analysis, developed in the two previous sections, shows that a comparison between the relative efficiency of the capitalist and cooperative firms in pursuing their specific objective functions does not lead to clear-cut results. In order to take a step forward, it may be useful to specify the influence exercised by some independent variables on the values of
Let us start from Equation (17), reproduced here with only a simple manipulation:22
Equation (17 bis) shows that, similar to what happens in the capitalist firm, in the cooperative firm the optimal amount of monitoring effort spent by the temporary manager has an inverse relation with the following variables: the unitary coefficient of the monetary disutility related to the effort of workers (
These relations show that in the cooperative firm, as in the case of the capitalist firm, it is convenient to increase the organizational effort of the manager and to consequently decrease her monitoring effort whenever the positive impact of (
First of all,in the capitalist firm, (
Another way to reach the same conclusion is by considering the parameter
These results are reinforced by the fact that the cooperative firm does not need to take recourse in additional monitoring in the case of exogenous increases in employment. By contrast, Equation (17bis) shows an inverse relationship between N and the amount of monitoring; if the distinction between
Here, it is important to underline that the opposite holds true for the capitalist firm. As indicated in Equations (10) and (11bis) (see Section 3), an increase in w (the optimal level of working effort) implies an increase in the employment level as well as the required amount of managerial monitoring. In this case, as well, the economic justification is evident: if N increases, the entrepreneur will have greater difficulty controlling each worker’ efforts and will have to increase her monitoring activity. However, the increase in N often comes with an increase in the organizational complexity of the capitalist firm. If this occurs, unlike the cooperative firm, the capitalist firm will pay for each increase in N with an increase in the cost of the trade-off, and the allocation of the managerial effort level between monitoring and organization becomes further sub-optimal.
What we just stated leads to an important but partial conclusion. If comparison between the capitalist firm and the cooperative firm were limited to the problem of worker oversight, we would be able to give a clear-cut answer to the question at the core of this paper: in a monitoring model of working activity, the cooperative firm pursues its objective function more efficiently than the capitalist firm. “Social consciousness”, i.e., solidarity among cooperative workers, explains this relative advantage. However, what has been disregarded until now is the other variable that the cooperative firm aims to maximize: the share of profits (
where:
A stands for the profits of the cooperative firm per worker, B the monetary wage collected by each worker net of the effort supplied, and C the opportunity cost borne by the worker to become member of the firm (with B < C).26
The Equation (18ter) shows that the share of the stored profits is a direct function of the wage of each worker, net of the monetary value of the disutility deriving from the worker’s supplied effort, but an inverse function of the profits realized per worker and of the opportunity cost borne by workers to become members. Increases in the net wage raise the utility of each worker and erode the profits of the cooperative firm; the latter can, however, decrease the share (
Equation (18ter) thus shows that, in the cooperative firm, there is always a trade-off between the degree of efficiency of the current production process and the maximization of long-term growth. Furthermore, this same equation emphasizes that, if potential worker-members have a better opportunity for risk-free investment in the financial market, it would be a further impediment to growth.27 The various problems originating from such constraints do not only directly limit the rate of growth of the cooperative firm in the long term, but they also weaken the possible virtuous circle between increases in the employment level and growth rate. It could be maintained that similar constraints also affect the capitalist firm. However, this does not hold in our model. By assumption, the entrepreneur has enough capital to generate every production process available to the firm.
The comparison between the behavior of the capitalist firm and that of the cooperative firm in pursuing their specific objective functions is thus much less clear-cut than it appeared from Equation (17bis) alone. Indeed, our conclusion is that the relative efficiency of the two kinds of firm depends on whether monitoring costs prevail or not over financial costs.
As previously stated, the advantages of the capitalist firm over the cooperative firm appear connected to the financial resources for the purchase of capital K. In the real world, these advantages could be less effective than what emerges from our model. For instance, the operational mode of the Italian economy, which is concentrated on small and microfirms (which come close to the entrepreneurial organization we examined), has often been stigmatized as “capitalism without capital”.28 Financial constraints are set by the family wealth of entrepreneurs who are reluctant to share the control of their firms with non-relatives and to have recourse to the regulated capital market or even bond debt. Moreover, this kind of entrepreneur mistrusts external managers. It follows that small capitalist firm scan be drastically limited by financial constraints in developing successful activities and can be strongly dependent on the banking sector. On the other hand, some kinds of cooperative firms (most of all, consumer cooperatives) contract large amounts of stable low-cost debt (so stable as to come close to capital funding)―the members’ loans.29 Moreover, a number of large cooperative firms have access to bank loan contracts that are not subject to more restrictive conditions than those offered to their capitalist competitors. That said, it remains true that capitalist firms normally use a wider spectrum of financial assets as regards cooperative firms.
Our previous model cannot take into account these aspects since the workings of financial markets is left in the background. To reach a more conclusive comparison between the organization and governance of capitalist and cooperative firms, it would thus be necessary to incorporate the financial funding of the two different firms as an endogenous variable. However, this requires a preliminary solution to a still open problem in the economic and legal analysis of cooperative firms: compatibility between the mutuality principle, which is a constitutive and essential characteristic of this kind of firm, and access to new financial assets.30 Only by solving this problem would it be possible to combine the effort made by each worker of the cooperative firm to become one of the owners with the opportunities and management constraints to accessing different forms of funding. The consequent funding costs of the cooperative firm would then have to be compared with the corresponding cost of a capitalist firm willing to gain access to different financial instruments available on the market.
As far as we know, analysis of the financial aspects of the cooperative firm is no closer to supplying us with the answer we are looking for. Hence, rather than pursuing the goal of making the financial variables of cooperative and capitalist firms endogenous, we propose some more limited extensions of our model here.
First of all, even though it is the most analytically developed part, managerial monitoring can be further examined and extended. A first extension would be a more general formulation of firm monitoring and organizational costs as well as formalization of the related production functions. Then, with some modest algebraic manipulation, it would be possible to specify worker utility functions that are non-linear and take the workers’ degree of risk aversion into consideration. It would also be beneficial to diminish the contrast between short-term objectives in the capitalist firm and long-term objectives in the cooperative firm, without overlooking the distinction between the two firms and the related comparison between their degree of efficiency.
Secondly, the removal of some restrictive assumptions would permit a more elaborate representation of the organization of the cooperative firm. For example, specification of a more complex utility function of the representative worker would be useful to introduce not only risk aversion, but also a type of worker who does not share ownership of the cooperative firm. It would then be possible to distinguish between the utility functions of worker-owners and worker-non-owners in the cooperative firm, and then to compare both functions with that of workers in the capitalist firm. Our expectation is for there to be fewer differences between the utility function of worker-non-owners in the cooperative firm and that of workers in the capitalist firm than between the utility function of the former and that of worker-owners in the same cooperative firm. Nevertheless, the governance of the cooperative firm would still differ from that of the capitalist firm, and it would be possible to better debate the benefits and costs related to workers’ participation.
Thirdly, the organizational specification of the two different kinds of firms could be related to the different technology they adopt. At least in Italy, there is a low presence of cooperative firms at the technological frontier. This could be explained by the fact that the compared advantages of the cooperative firm are directly related to labor-intensive production processes, or it could stem from a different attitude toward risk on the part of capitalist entrepreneurs relative to worker-owners and cooperative managers.
Fourthly, it would be possible to make a more radical change to the analytical structure of our model by introducing the separation between ownership and management control in both types of firms. The capitalist firm would not be reduced to entrepreneurial activity, since it could take the form either of a firm with concentrated shares of ownership or of a public company (diffuse ownership). That said, in both these cases, the holder of property rights in the capitalist firm would be separate from the management. On the other hand, in the cooperative firm, the identification of the manager as a supporter of cooperative principles would no longer be valid: as often happens in the real world, management would be constituted by managers hired on the market competing with capitalist firms. Hence, management of the cooperative firm would be similar to that of the capitalist firm. The main analytical impact of such changes would be that, in each kind of firm, there would no longer be only one agency relationship but several (see Section 1). To our knowledge, there is no well-formulated model of partial equilibrium comparing the efficiency of capitalist and cooperative firms by means of different agency relationships within a unified framework.31
Finally, an even more profound innovation would be the endogenization of the monetary wage that was treated as an exogenous variable in our model. If monetary wage were to become a dependent variable, we would not only have a simple model of monitoring but a model that would have to also specify optimal incentive schemes to face moral hazard (and hidden action). The optimal combination of the incentive design and monitoring scheme would already be a thorny problem in a unified model. In our setting, we would also have to re- phrase the comparison between the two different firms in this complex new model.
Our principal-agents model has dealt with the problems of monitoring worker activity and capital constraints in a capitalist firm and cooperative firm.
From an analytical point of view, the part of the model dedicated to managerial monitoring of the working activity is the most developed. It proves that, in the presence of information asymmetries about the actual effort provided by each worker, the cooperative firm requires less monitoring to achieve the optimal level of worker effort. Also being owners of the firm and thus able to choose the person responsible for management functions among insiders, cooperative workers develop relations based on solidarity and forms of “peer monitoring” that reduce monitoring costs. Consequently, the manager of the cooperative firm can devote more effort to organizational activity, which increases the efficiency of the production process. Hence, in terms of working effort, governance in the cooperative firm is more efficient than in the capitalist firm.
However, an opposite result holds true for the purchasing cost of capital in the two kinds of firms. The analysis of this problem represents the less developed part of the model. Given that every worker of the cooperative firm can become a member only through buying a share of the capital on the market, it follows that his financial effort has to be remunerated with greater utility related to his working activity or drawbacks from profits made by the firm. Therefore, the financial constraints to the purchase of K reduce the production efficiency that the cooperative firm would achieve, if only managerial monitoring and the consequent organizing effort are considered. Moreover, the capital constraints represent an obstacle to achieving an optimal rate of long-term growth for the cooperative firm. It also dampens benefits related to the virtuous circle between increases in the level of employment and growth rate. Such inefficiencies and constraints are not present in the capitalist firm, even considering the opportunity cost to the entrepreneur from making the capital stock K available, which is in line with pursuing the objective of profit maximization.
The conclusion is that our model does not allow us to determine which of the two types of firms has the most efficient governance and organization. To achieve a more precise overall result, the model should be extended to analyze the financial aspects of the two firms and generalize the monitoring scheme. This extension and generalization would require complex descriptive and analytical work, which goes beyond the scope of this paper. Our intention is, however, tore-open the academic debate on fundamental topics such as ownership, control, and governance and to focus attention on important but less explored concepts such as the “social consciousness”, which seem, in certain economic organizations, to be a significant force driving investment and maximization decisions.
Michele Alessandrini,Marcello Messori, (2016) Workers’ Effort: A Comparison between Capitalist and Cooperative Firms. Theoretical Economics Letters,06,601-620. doi: 10.4236/tel.2016.63066