Job Independence as an Incentive Device

A firm can either subject its workers to strict rules and regulations or grant them independence. If independent, they can make entrenchment-investments which will not only raise their productivity but also make the firm depend on their cooperation. However, in contrast to a standard holdup problem, the firm can afterwards take over control, thus stripping such workers of a part of their bargaining assets. This leads to structural distortions and may aggravate the holdup problem. However, the threat of partial expropriation may also alleviate the holdup problem and even induce overinvestment