Specific human capital and partial employee ownership: A transaction cost analysis

Abstract

In this paper, we develop, analyze, and test the hypothesis that partial employee ownership may be used as an institutional arrangement to economize on the costly problem of ex post opportunism inherent in the investment of specific human capital. Based on a unique survey of 655 British firms, we examine the empirical link between the likelihood of partial employee ownership and the presence of specific human capital, as well as uncertainty (internal and external) and frequency of transaction. Adjusted for possible structural differences, empirical evidence suggests considerable support for our hypothesis. Our results are also broadly consistent with the Transaction Cost Economics idea that institutional arrangements can be analyzed as transaction cost minimizing choices to govern specific transactions by providing economizing degrees of ex ante incentive compatibility and ex post contractual safeguard.

Citation

Wilson, N., Zhang, H. and Robinson, A. (2003), "Specific human capital and partial employee ownership: A transaction cost analysis", Advances in the Economic Analysis of Participatory & Labor-Managed Firms (Advances in the Economic Analysis of Participatory & Labor-Managed Firms, Vol. 7), Emerald Group Publishing Limited, Leeds, pp. 211-226. https://doi.org/10.1016/S0885-3339(03)07010-8