Why are Worker Cooperatives So Rare?

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Kremer_1997_110125010736[1].pdf1.41 MB
TitleWhy are Worker Cooperatives So Rare?
Publication TypeReport
Year of Publication1997
AuthorsKremer, M
Corporate AuthorsNational Bureau of Economic Research,, Massachusetts Institute of Technology,
Abstract

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.

URLhttp://www.fondazionebarberini.it/allegati/Kremer_1997_110125010736.pdf
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Comments

I've noticed that some

I've noticed that some thriving worker cooperatives were started by individual entrepreneurs who built the business then spread ownership. Just because workers can do the work in the daily operations of a business does not mean they can start, build, and market the venture. Some cooperatives start by "borrowing" the leadership in the form of non profit techical assistance where the cost of leadership is paid for by a third party.  In private enterprises without such outside help, the leadership or technical expertise expects (not unreasonably) to have their contribution rewarded.

Another reason is start up capital... as I understand it, the Cleveland experiment was dependent on foundations and other charitable and government sources for most of start up capital.  When start up capital comes from a private source, it expects a return on the capital or at least their money back... even people who lend through Kiva want their money back to reloan again!

Another thing I've noticed is that sometimes people working in coops  want to be given credit for "equity share" when they spend time on non business related activities... like protesting one thing or another. Too much of that means people want to be paid for doing nothing that will sustain the business.  Too much of that attitude may hinder the long term viability of the business.

 

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