Workers’ Participation Stimulated by the Economic Failure of Traditional Organization: Comment



Jürgen Backhaus’s paper is a brief survey of how the “theory of the firm” has changed in the last fifteen or so years and how the “new theory of the firm” can be applied to analyze a policy proposal. What passed, before 1970, under the name of theory of the firm was really “price theory”. The “firm” was simply the interface between two sets of markets (factor markets and product markets). In the intervening period, however, the “new institutional economic” has developed, and many economists have come to recognize that not all resources in a market economy are allocated by the market. Many microeconomists now concern themselves with the hierarchical nature of firms: their internal organization. We have also come to recognize that the market does not always operate through discreet transactions between more or less anonymous agents. Many exchange relations are of a long-term nature, where the identities of the parties concerned is of material significance. One case where the significance of the “identity” of agents has been highlighted is that of transaction-specific investment (Williamson, 1975, 1985). Contracting problems arise where either or both parties have undertaken investments which outside that particular transaction have significantly reduced value. Backhaus’s model of codetermination is largely driven by one class of transaction specific investment: firm specific human capital. It will be argued below that while I accept that firm-specific human capital gives employees a “stake” in the firm, even if firm-specific human capital is absent, workers can still have such a stake. That stake should be recognized in the “constitution” of the firm.


Human Capital Cooperative Game Employment Relation Price Theory Unanimity Rule 
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© Springer-Verlag Berlin · Heidelberg 1989

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