Workers participation may be related to economic factors, through profit sharing, or to organizational aspects, through workers involvement to the decision making process of the firm. Aim of the paper is to investigate the different implications of workers participation, with respect to either economic or organizational factors.
The analysis is conducted in the standard PA model under moral hazard, as it represents the optimal incentive contract form for a wage contingent on output.
Results show that the inclusion of profit sharing in the PA model under moral hazard is irrelevant in changing effort and welfare equilibrium levels. Instead, changes in the bargaining structure, having worker partecipation in the decision making process of the firm, originates a higher level of effort response, hence a welfare improvement.