Membership and Employment in an Egalitarian Cooperative

Economic models of the labour-managed firm often stress inefficiencies and perverse behaviour. In his seminal work, Ward (1958) considers a firm in which dividend, not profit, is maximized. Dividend is defined as value-added net of fixed costs, divided by the number of workers. For the short-run problem with the capital stock fixed, Ward shows that: the usual demand signals would induce perverse responses, i.e. contraction (expansion) when demand increases (decreases); workers will not move between firms to equate marginal products of labour; and the dividend-maximizing firm will respond to an increase in fixed cost by increasing the number of workers. These results are disconcerting in that they cast doubt on product market stability due to downward-sloping supply curves, on the achievement of an efficient allocation of resources, and on the formulation of consistent policy prescriptions in a labour-managed economy. Ward's fundamental result-that dividend maximization leads to a contraction (expansion) of the number of workers in the firm as output price increases (decreases)-is remarkably robust. It has its analogue in the multi-product firm (Domar, 1966); it is not eliminated when labour-leisure considerations are introduced (Ireland and Law, 1981); and it applies to variations in expected price when uncertainty is introduced (Bonin, 1980). However, the appropriateness of modelling the producer cooperative as a firm in which the number of workers can be varied freely to maximize dividend has been criticized. Robinson (1967) and Vanek (1969) argue that a true collective would not dismiss some of the brethren in exchange for small increments in the income of the remaining members. Interestingly, this solidarity position can be supported by the individual self-interest-maximizing behaviour of a representative member (Bonin, 1981)

Economics · Labour economics · Cooperative Studies and Economics · Economic theories and models · Taxation and Compliance Studies

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