|Title||Why are Worker Cooperatives So Rare?|
|Year of Publication||1997|
|Corporate Authors||National Bureau of Economic Research,, Massachusetts Institute of Technology,|
This paper argues that worker cooperatives are prone to redistribution among members, and this redistribution distorts incentives. I assume that employment contracts are incomplete. In the model cooperative members pay in a capital contribution to purchase equipment. Then they receive shocks to ability. Each worker's (observable) output depends on ability and effort, neither of which can be observed separately. After ability is realized, members vote on a wage schedule as a function of output. If the median member has less than average ability, the cooperative will vote for a redistributive schedule, dulling incentives. 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 means forfeiting the dividents on their capital production. The model can explain why cooperatives typically have egalitarian wage policies.