Internal Rent Seeking, Works Councils, and Optimal Establishment Size

Beckmann, Michael and Kräkel, Matthias. (2011) Internal Rent Seeking, Works Councils, and Optimal Establishment Size. WWZ Discussion Papers, 2011 (14). Basel.

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Official URL: http://edoc.unibas.ch/dok/A6001412

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Using a microeconomic model and data from the Establishment Panel of the German Institute for Employment Research, we analyze the optimal establishment size against the background of rent-seeking workers and the influence of works councils. The theoretical part shows that establishment size has a discouragement effect on the level of individual rent seeking but also a quantity effect as the number of rent seekers increases. The interplay
of both effects – together with technological considerations – determines whether the employer chooses an inefficiently small or large establishment size. Introduction of a works council restores efficient establishment size although it is purely used as rent-seeking device. Whether the employer benefits from a works council or not, depends on the degree of contract incompleteness and the degree of worker coordination via a works council. The empirical part indicates dominance of the discouragement effect over the quantity effect in establishments without works council. As theoretically predicted, works councils are beneficial by disentangling rent-seeking and production issues, thus eliminating the influence of the two rent-seeking effects.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Personal und Organisation (Beckmann)
12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers
UniBasel Contributors:Beckmann, Michael
Item Type:Working Paper
Note: -- Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
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  • handle: RePEc:bsl:wpaper:2011/14
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Last Modified:13 Mar 2018 14:16
Deposited On:19 Jul 2013 07:36

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