On the Economic Theory of the Labor-Managed Firm Under Socialism.

This dissertation analyses disparate theories of the competitive labor-managed firm (LMF) in a socialist economy and proposes a new theory. The discussion is concerned both with short run and long run behavior of the LMF, and compares the results with st and ard and well-known results for the profit-maximizing firm (PMF). The discussion of the short run summarizes models proposed by Benjamin Ward, Evsey Domar, Abram Bergson, and Branko Horvat. These models are shown to assume restrictions on utility-maximizing behavior for the members of the LMF. The differences in their results stem from differences in their assumed restrictions. A utility-maximizing model of the short run is then proposed. Each of the previous theories is shown to be a special case of the utility-maximizing theory. Comparative static results and a shut-down condition for the firm are derived in this setting and are different from previous results. While the short run comparative static behavior of the LMF is not Pareto optimal, it is shown that a simple wage policy, if established by a central planning bureau or other political organization, can insure optimal allocation of labor and other inputs. While most discussions of short run behavior in the LMF are confined to comparative static analysis, short run dynamics may be of some importance. Dynamic adjustments in the LMF are sufficiently different from those of the PMF to merit a separate discussion. The discussion here concludes that the dynamic behavior of the LMF in the short run may be problematical, but only for extreme specifications of the production and internal labor supply functions. Under these extreme cases, the firm may overstep its short term financing limitations. There have been several approaches to the long run analysis of the LMF. Several of these are reviewed, incuding those of Benjamin Ward, Jaroslav Vanek, Svetozar Pejovich, and a paper by Francois-Xavier Litt, Alfred Steinherr and Jacques Thisse. Branko Horvat has also done work which bears on the subject. A new analysis of the long run is then proposed for the LMF. This analysis is based on the proposition that the savings decision is endogenous to the long run optimizing problem for the LMF, although this is not so for the PMF and has not been treated in this way in previous analyses of the LMF. This suggests that the long run for the LMF should be treated as a problem of economic growth, similar to the st and ard growth model except that "population" is endogenously determined. The analysis is conducted in this framework and yields results that are at odds with the results of previous analyses. In particular, it is shown that the LMF has a quasi-equilibrium capital stock and labor force which depend exclusively on technology and minimum firm size constraints in the case of constant returns to scale and on technology alone in the case of variable returns. This is the case even when the firm finances its own investments. The effects of the age structure of workers in the firm are also investigated. While the age structure has no effect on the quasi-equilibrium values of the capital stock and internal labor force, it may prevent the firm from reaching these values, even in a steady state. One can define a steady state firm size, called a pseudo-equilibrium, which differs from the quasi-equilibrium. While the latter has all the efficiency properties of the long run equilibrium for the PMF, the former does not. In sum, it is possible to develop a theory for the labor-managed firm based on utility maximizing behavior. Theoretical results and policy conclusions of such an analysis are quite different from those of previous writers.PhDEconomic theoryUniversity of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/157875/1/8025640.pd