Citation:
Kremer, Michael. 1997. “Why are Worker Cooperatives So Rare?”. Copy at http://www.tinyurl.com/y2a5csnp
Abstract:
This paper argues that worker cooperatives are prone to redistribution among members, and that the redistribution distorts incentives. I assume that employment contracts are incomplete. In the model cooperative members pay in a capital contribution to purchase equipment. They then receive shocks to ability. Each worker's outputs depend on ability and on effort, neithr of which can be observed seperately. Whereas workers in firms owned by outside shareholders would quit if the firm redistributed away from them, cooperative members will be reluctant to leave, since this entails forfeiting the dividends on their capital contribution. The model can explain why cooperatives typically have egalitarian wage policies.