Ownership, Incentives and Monitoring

38 Pages Posted: 16 Jul 2008

See all articles by Chong-En Bai

Chong-En Bai

The University of Hong Kong - School of Economics and Finance; University of Michigan - William Davidson Institute

Chenggang Xu

University of Hong Kong

Date Written: March 2001

Abstract

This paper studies the effect of ownership structure on workers' incentives for investing in firm-specific human capital. Particularly, we analyse such incentivers and monitoring under employee ownership and capitalist ownership. In our model, the employee-owned firm is a firm bought by its workers who pay the competitive price. Under certain conditions, we show that the workers' investment and expected income are higher and the monitoring intensity is lower in an employee-owned firm than they are in a capitalist firm. We also show that the incentive effect of employee ownership increases as a worker's reservation wage decreases, as the monitoring cost or as the productivity uncertainty increases. Most of our results are consistent with the available empirical evidence

JEL Classification: D20, D80, H11, H70, L22, P11

Suggested Citation

Bai, Chong-En and Xu, Chenggang, Ownership, Incentives and Monitoring (March 2001). LSE STICERD Research Paper No. TE413, Available at SSRN: https://ssrn.com/abstract=1160979

Chong-En Bai (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

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University of Michigan - William Davidson Institute ( email )

724 E. University Ave.
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Ann Arbor, MI 48109-1234
United States

Chenggang Xu

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

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