Social capital and organizational models Marina Albanese - Salvatore Villani University of Naples Federico II AUSTRALIA-ITALY COMPARATIVE CO-OPERATIVE SYMPOSIUM 25th Jul th Jul 2013 University of Sydney

THE TOPIC OF THE RESEARCH The structure of productive organization and compensation schemes can favour the accumulation of social capital. It is a feature of human relationships From the Coleman’s point of view social capital is: - obligations and expectations which are linked to the level of trust - the capacity of information to flow freely throughout social structures - norms with effective sanctions in case of shirking We compare two organizational models – the capitalistic and democratic ones – to investigate which of them gives best incentives to social capital accumulation

SOCIAL CAPITAL IN FIRMS What is: Social capital is a good working climate Cooperation among workers is the starting point Its nature : It is a component of the production function (relational) Productivity of labour increases It can increase the utility of workers

A short review of literature Information transfer – knowledge transfer – problem solving Human capital (Greve, Benassi and Sti, 2006) Tacit knowledge (Westlund, 2003; Brown and Duguit, 1998) Common working language (Boxall and Purcell, 2003; Campbell, McCloy, Oppler and Sager, 1993)

STARTING HYPOTHESIS The social capital in our model is related, as in Rob and Zemsky (2002), to worker’s cooperative effort The worker always decides his total effort and how to share it in terms of individual (e 1 ) and cooperative effort (e 2 ). When he cooperates, he contributes to accumulate social capital in the firm The worker’s wage consists of a fixed component plus a variable bonus proportional to his effort The higher are the non-remunerated levels of cooperative effort, the bigger is the difference between performed output and estimated output. Thus, the allocation of effort in this model is related to a prisoners’ dilemma

INCENTIVES AND SOCIAL CAPITAL IN OUR MODEL Worker decides his effort level and its allocation (individual of cooperative effort) considering: - wage and incentives (monetary) - social interation (relational) They enter in the utility function of worker

THE WORKER’S DECISION PROBLEM UTILITY FUNCTION = worker’s expected wage = relational aspects = costs

THE WORKER’S DECISION PROBLEM WORKER’S PERSONAL COSTS COST OF EFFORT

THE WORKER’S DECISION PROBLEM RELATIONAL ASPECTS o Worker’s marginal utility from cooperating o Normalized average cooperation level existing in the firm at time t

THE WORKER’S DECISION PROBLEM = base wage = variable part of the compensation package (measures the intensity of incentives) COMPENSATION PACKAGE = output of individual effort (worker’s individual effort in carrying out his work tasks, without looking for any form of coordination with his colleagues - fully observable) = output of cooperative effort (worker’s cooperative effort - not fully observable)

THE WORKER’S DECISION PROBLEM When the worker maximize his utility function (Ui), he choose his effort quality (e1 or e2) considering the utility of wage, the utility of relational aspects, the cost of effort Cooperative workers’ preferences is related to reciprocity The cost of defection is related to a social norm

FREE-RIDER INCENTIVES Asimmetric information and free-rider incentives derive from the incomplete observability of cooperative effort and the problems related to its full evaluation The worker's real output: The surplus:

Organizational models: a comparison COOPERATIVE FIRMCAPITALISTIC FIRM Target function Worker’s wage

Conclusions… This means that the surplus realized in the capitalistic firm is converted into capitalist’s profits, while the one realized in the LMF is totally shared among the partners-workers due to their nature of residual claimants We find that the incentives to exert the cooperative effort are stronger in the case of a LMF’s worker than in the case of a worker of a capitalistic firm. This induce workers of an LMF to exert higher levels of cooperative effort and the LMF tends to accumulate higher levels of social capital, in the long run, as described in the Rob and Zemsky (2002) model.