Book Description

Advocates of codetermination assert that labor's participation in the corporate decision-making process will enhance the efficiency of the firm and lead both workers and stockholders to Pareto-superior welfare positions. There is, however, no widely accepted theory of the codeterminationist firm and some doubt exists concerning how the projected welfare gains arise and how their distribution is accomplished. The present paper throws some light on thse issues by developing an analytical model that explains the circumstances under which the claims made for codetermination are valid and those under which the claims are invalid. Given a static universe and certain other specialized assumptions, it is found that a shift to codetermination can produce Pareto improvements for the firm. But, under dynamic conditions, labor participation can neither guarantee allocative efficency nor ensure a continuing series of Pareto improvements. Conflict situations can easily arise between workers and stockhoders; in general, codetermination is compatible with movement to Pareto-inferior solutions as well as to Pareto-superior solutions.