AltInst: Employee Ownership of Firms

"Employee Ownership of Firms"
      The New Palgrave Dictionary of Economics and the Law, 1998

      BY: HENRY HANSMANN
              Yale University, Law School

 Contact: HENRY HANSMANN
   Email: Mailto:henry.hansmann@yale.edu
  Postal: Yale University, Law School
           Box 208215
           Yale Station
           New Haven, CT 06520-8215 USA
   Phone: (203)432-4966
     Fax: (203)432-1040

ABSTRACT:
 Once widely considered just a theoretical curiosity or an
 ideological aspiration, employee ownership of enterprise has
 attracted considerable interest in recent years as a practical
 matter of organization. In the West, this interest derives in
 considerable part from the decline of unionism and the resulting
 search for other means of assuring efficiency and equity in
 labor contracting, while in the East, interest in employee
 ownership has been stimulated by the rapid market-oriented
 ownership structures that stop short of a direct leap into full
 finance capitalism.

 This essay explores the relative efficiency advantages and
 disadvantages of employee ownership with respect to other forms
 of ownership -- in particular, investor ownership -- and seeks
 to explain why employee ownership has become widespread in some
 industries, such as the service professions, while it remains
 rare in many others. The general conclusion offered is that
 employee ownership appears relatively efficient in a broad range
 of circumstances so long as control of the firm can be placed in
 the hands of a class of employees who have highly homogeneous
 interests. Where, however, this condition cannot be met -- as is
 commonly the case -- other forms of ownership typically have the
 advantage.

Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
RWJF Health Policy Scholar, Sch. of Public Health 510-643-1884
140 Warren Hall, UC Berkeley, CA 94720-7360 FAX: 510-643-8614

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Received on Wed Oct 14 00:43:39 1998