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Long-Term Employment Relationships By Credible Commitments

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Listed:
  • Martin Abraham
  • Bernhard Prosch

Abstract

Carl Zeiss, a famous German firm, was among the first companies to provide employee benefits. Its sole owner, a foundation known as the Carl-Zeiss-Stiftung, promised a century ago to fulfill almost revolutionary social-welfare obligations to company workers. Can this promise be explained within a model of rational behavior? Using game theory, the relationship between employer and employee can be reconstructed as a Prisoner's Dilemma, in which both sides are interested in future cooperation but have incentives to terminate the relationship opportunistically. One possible solution is the implementation of institutionalized self-commitments; that is, a pension fund and severance pay are `hostages' that serve as incentives. Analysis indicates that the Carl-Zeiss-Stiftung can be seen as a historical example of a private-sector organization that committed itself to providing benefits to solve a basic cooperation problem. The foundation's statute provides incentives for the both employer and employees to establish a long-term employment relationship. In fact, this was exactly the intention of the founder, Ernst Abbe.

Suggested Citation

  • Martin Abraham & Bernhard Prosch, 2000. "Long-Term Employment Relationships By Credible Commitments," Rationality and Society, , vol. 12(3), pages 283-306, August.
    • Handle: RePEc:sae:ratsoc:v:12:y:2000:i:3:p:283-306
    DOI: 10.1177/104346300012003002
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    References listed on IDEAS

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    Cited by:

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    2. Esteves, Luiz A., 2014. "A Economia das Firmas Cooperadas e a Análise Antitruste [The Economics of Cooperative Firms and the Antitrust Analysis]," MPRA Paper 58908, University Library of Munich, Germany.
    3. Florian Baumann, 2010. "Severance Payments as a Commitment Device," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(4), pages 715-734, December.

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