Agency problems in the capital markets and the employment relationship: The possibility of efficiency-enhancing institutional innovation: An empirical case-study

1997 1997

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Abstract (summary)

In view of the prevalence of information asymmetry and incentive incompatibility problems, the market for capital and the employment relationship are shown to be prey to pervasive agency problems that make economic transactions subject to enforcement costs. The presence of these costs subverts the Walrasian presumption of efficiency for decentralized markets, and the separation between efficiency and ownership concerns, resulting in forms of capital rationing and productive inefficiencies. Under these conditions, government intervention might help to attenuate the coordination failures and their associated efficiency losses for the economy by facilitating ownership of assets by those economic agents for whom information is relatively costless, and who have the capacity to take into account the consequences for all stakeholders.

In this dissertation, we test the hypothesis that a union-controlled investment fund, such as the Fonds de solidarite des travailleurs du Quebec (FSTQ) might constitute an institutional innovation attenuating problems of information asymmetry and incentive incompatibilities. Through a case-study, we first analyze the original institutional features of the FSTQ that could help alleviate and/or compound the said agency problems. We then turn to an analysis of a segment of the FSTQ investment portfolio to verify whether these FSTQ-specific institutional features generate gains or losses for stakeholders, the economy and the government.

On the basis of the evidence gathered, it is shown that the FSTQ effectively helps relieve problems of capital rationing; and fosters greater labor-management cooperation that results--under certain conditions--in measurable labor productivity gains, thus engendering a net social gain. In view of these gains and of the concentration of the FSTQ investments in the riskier end of the investment spectrum, it is argued that government support of the FSTQ in the form of tax expenditures is justified and engenders a net fiscal surplus.

Indexing (details)

Economic history;
Economic theory
0501: Economics
0509: Economic history
0511: Economic theory
Identifier / keyword
Social sciences
Agency problems in the capital markets and the employment relationship: The possibility of efficiency-enhancing institutional innovation: An empirical case-study
Laliberte, Pierre
Number of pages
Publication year
Degree date
School code
DAI-A 58/02, Dissertation Abstracts International
Place of publication
Ann Arbor
Country of publication
United States
0591301679, 9780591301670
Gintis, Herbert M.
University of Massachusetts Amherst
University location
United States -- Massachusetts
Source type
Dissertations & Theses
Document type
Dissertation/thesis number
ProQuest document ID
Database copyright ProQuest LLC; ProQuest does not claim copyright in the individual underlying works.
Document URL
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