Self-financing in Labor-managed Firms (LMFs): Individual Capital Accounts and Bonds

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Advances in the Economic Analysis of Participatory & Labor-Managed Firms

ISSN: 0885-3339
Series editor(s): Professor Takao Kato

Subject Area: Economics

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Document Information:
Title:	Self-financing in Labor-managed Firms (LMFs): Individual Capital Accounts and Bonds
Author(s):	Ermanno C. Tortia
Volume:	10 Editor(s): Sonja Novkovic, Vania Sena ISBN: 978-0-7623-1389-1 eISBN: 978-1-84950-472-0
Citation:	Ermanno C. Tortia (2007), Self-financing in Labor-managed Firms (LMFs): Individual Capital Accounts and Bonds, in Sonja Novkovic, Vania Sena (ed.) Cooperative Firms in Global Markets (Advances in the Economic Analysis of Participatory & Labor-Managed Firms, Volume 10), Emerald Group Publishing Limited, pp.233-261
DOI:	10.1016/S0885-3339(06)10009-5 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Article type:	Chapter Item
Abstract:	The literature on labor-managed firms identifies the source of under-capitalization in the Furubotn–Pejovich effect. Appropriable capital accounts can counteract the horizon problem, but they engender little-examined problems connected with the distribution, reinvestment, and reimbursement of net surpluses. This paper proposes that the introduction of cooperative bonds would provide a better match between the horizons of members and their firms. However, bonds generate risks of their own due to capital variability, thus requiring the imposition of various constraints and the retention of appropriate levels of collective reserves. Finally, a hierarchy of liabilities is proposed to protect parties who undergo information disadvantages.