NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Frank Schmid

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Working Papers

October 2000Class Struggle Inside the Firm: A Study of German Codetermination
with Gary Gorton: w7945
Who should control the firm? What should be the firm's objective function? If contracts are incomplete, then the group of input providers that most needs their interests protected should be allocated control rights to the firm. Existing theories argue that the suppliers of capital are most in need of protection. We empirically assess this answer by examining the German system of codetermination,' a governance system under which employees are allocated some control rights over corporate assets by law. Codetermination laws require that employees be represented on the (supervisory) board of directors. If codetermination sufficiently empowers employees, and if stockholders' rights cannot be contractually protected, then employees may redistribute the firm's surplus towards themselves. In...

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