No. 105: When should a firm employ its workers? A relational contracting approach

Jahr: 2023
Typ: Working Paper
Open Science:

Abstract

A principal contracts with an agent to repeatedly perform a task. The principal can choose between two organizational forms: employment or self-employment of the agent. The key distinction between the organizational forms is that, under employment, the principal is allowed to stipulate how the agent performs the task, whereas this is legally forbidden under self-employment. Due to incomplete contracts, the labor relationship must be governed by relational agreements, which are affected by the allocation of decision rights inherent to each organizational form. We show that employment typically leads to an overprovision of the agent’s action, compared to an underprovision under self-employment, and that employment relationships tend to be (i) more rigid and (ii) better suited to favorable production environments, relative to self-employment. We then use our model to analyze the impact of taxation, minimum wages and formal performance pay on the outcome of relational contracting and the ensuing implications for the principal’s choice of organizational form.

Beteiligte Institutionen

Die Hauptstandorte vom TRR 266 sind die Universität Paderborn (Sprecherhochschule), die HU Berlin und die Universität Mannheim. Alle drei Standorte sind seit vielen Jahren Zentren für Rechnungswesen- und Steuerforschung. Hinzu kommen Wissenschaftler der LMU München, der Frankfurt School of Finance and Management, der Goethe-Universität Frankfurt, der Universität zu Köln und der Leibniz Universität Hannover, die die gleiche Forschungsagenda verfolgen.

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