Unregulated monopolies produce too low quantity levels. When workers participate in decision making, there will be a tendency for the firm to select even lower employment levels than will be chosen by pure profit-maximising firms. On the other hand, the employed workers' incentives to work long hours may improve. Thus, in monopolised sectors, workers' participation in decision making may prove particularly detrimental. Furthermore, it has benn argued that, in labor-managed market economies, it is hard to implement optimal regulation machanisms requiring that the most productive firms have the highest production. In this paper, it is shown that regulation mechanisms satisfying a first-best requirement of production to increase in productivity may be implemented in participatory firms, given that individual effort matters for production. However, pooling emerges on the margin when workers' control is complete.
