Firm structure and incentives
Abstract
The purpose of this study is to examine and compare the nature of the principal agent problem in both neoclassical and labor-owned firms. In the neoclassical firm, the agent (worker) is hired to perform a task by the principal (firm owner); however, due to the fact that output is not always perfectly observable, or that when observable, it may not be a deterministic function of effort, the principal may not be able to verify the actual level of effort expended by the agent. This gives the agent an incentive to "shirk" in the performance of his task; shirking involves avoiding work, or providing an amount of effort determined by the contract to be insufficient. In the labor-owned firm, the individual agent may also have this incentive to shirk. However, each worker plays a dual role, serving both as one of many agents as well as one of many principals. Shirking can be more costly in this setting, since it leads to lower individual income as well as a higher probability of dismissal. The dissertation is composed of three essays. The first is a review of the current literature on incentive mechanisms, the principal-agent problem, and labor-ownership. The second essay defines monitoring technology when supervision is a choice variable for the firm and examines the characteristics of both the neoclassical and the labor-owned firms. The third essay allows the level of employment to be a choice variable for the firm and examines firm and economy-wide response to changes in exogenous macroeconomic variables.
Degree
Ph.D.
Advisors
Pomery, Purdue University.
Subject Area
Labor economics
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