The role of exit costs in the theory of cooperative teams

We study the scope for internal enforcement of efficient production in cooperative firms when individual effort levels are unobservable and workers are able to exit the production relationship. Our analysis, based on Abreu's ( Econometrica 56, 2:383–396, Mar. 1988) notion of optimal penal codes...

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Bibliographic Details
Published in:Journal of Comparative Economics 1992-12, Vol.16 (4), p.596-618
Main Authors: Putterman, Louis, Skillman, Gilbert L
Format: Article
Language:English
Subjects:
Economic theory
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Summary:We study the scope for internal enforcement of efficient production in cooperative firms when individual effort levels are unobservable and workers are able to exit the production relationship. Our analysis, based on Abreu's ( Econometrica 56, 2:383–396, Mar. 1988) notion of optimal penal codes, suggests that the scope for effective enforcement is directly related to the cost of exit. Applications to the seemingly contradictory accounts of MacLeod (In Advances in the Economic Analysis of Participatory and Labor-Managed Firms, Vol. 3, pp. 5–23. Greenwich, CT: JAI Press, 1988) and Lin ( J. Polit. Econom. 98, 6:1228–1252, Dec. 1990 ) are discussed, as are various extensions of the basic model.
ISSN:0147-5967
1095-7227
DOI:10.1016/0147-5967(92)90094-N