Autori
Waldamann, Robert
Smith, Stephen C.

Titolo
A partial solution to the financial risk and perverse response problems of labour-managed firms: industry-average performance bonds
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 1992 - Fascicolo: 64 - Pagina iniziale: 1 - Pagina finale: 26

A serious problem with financing labour-managed or employee owned firms with standard performance bonds is that workers would have an incentive to make investments which do not add to value added but which do increase workers utilities. To avoid such problems it is necessary to design an asset which bears some of the risk which is out of the control of workers, but which makes payments which they cannot affect. In this paper such an asset is proposed, termed Industry-Average Performance Bonds. Each bond pays a fixed share of value added by other firms in the same industry. Since the payment depends only on the value added by other firms in the same industry, workers have no interest in reducing their liability by reducing value added. This asset would enable investors to sell insurance against general and industry specific risk to labour managed or fully employee owned firms. Use of the bonds would mitigate the well-known perverse supply responses of such firms by reducing the variance of economic rent.



Testo completo: http://hdl.handle.net/1814/415

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