On the endogenous determination of the degree of meritocracy in large cooperatives

Abstract

We consider a cooperative formed by a large number of workers differentiated by their initial endowment of wealth, which is both primary input (labor) and consumption (leisure). The cooperative is characterized by its wealth distribution, and produces a consumption good from labor, which allocates among workers according to a convex combination of the Proportional and the Egalitarian rule. In the first stage, workers decide this combination by simple majority. In a second stage, they choose how much labor to provide to the cooperative. We find that when in the cooperative’s wealth distribution, the median wealth is lower (higher) than the average, the degree of meritocracy chosen by workers is lower (higher) than that of the optimum, and coincides with it when both statistics coincide. This choice has similar consequences on the cooperative’s labor–output, since it increases with respect to the degree of meritocracy.