The name is absent

and when f^t < 1 the}’ choose ⅛ to maximize:

max{∣ (λ ɪog(l + k_i) + /( A log(l + fc_i))) - ⅛}                (14)

We therefore obtain the following solution for the investment choices under employee
cooperative.

Lenuna 12 The equilibrium human capital investment levels under employee cooperative
are given by:

max{0, k∑ }

where,

V'-l∙ if ∕' ≥ 1 ’
⅜(⅜ + ɪ) ~ 1∙ otherwise

Thus, as under outside ownership, when f' > 1 perfect competition gives employees
the correct marginal incentives to invest ex ante: when ∕^z < 1, empio}'ees will over-invest.
However, under the employee ownership the employees over-invest less than that under
the outside ownership.

Comparing Ownership Allocations

The analysis in this section highlights the positive effects of external competition on
incentives under all three ownership allocations. When competition in labor markets is
perfect then the first-best is achieved under all three ownership structures whenever f' > 1.
If. however, f^f < 1. then external competition has no effect on investment incentives and
the ranking of ownership structures remains the same as in the previous section: customer
cooperative is best and achieves the social!}’ efficient outcome: it is followed by employee
cooperative, which in turn dominates outside ownership. We summarize the discussion in
this section in the following proposition:

Proposition 4 When there is no lock-in, employees are homogeneous, and f' > 1. own-
ership is irrelevant. When f^,<l ownership matters and the ranking of ownership al-
locations is: customer cooperative is the most efficient allocation, followed by employee
cooperative and outside ownership.

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