the japanese system is pareto superior to a share

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Unformatted text preview: ers unless management can credibly promise to consider their interests alongside those of shareholders. Indeed, Garvey and Swan (1992) show that such a governance structure is well suited to providing incentives to employees to exert effort and to cooperate with one another. They conclude that when firm performance depends on cooperation (such as participation in teams, quality circles, etc.), the Japanese system is Pareto-superior to a share-value maximizing one. 13 See, for example, the classic work by Patrick and Rosovsky (1976). Itoh (1994) describes how workers are promoted from the bottom rank, on entry to the firm, to higher ranks as their tenure lengthens. Ranks are distinguished by general titles rather than by particular jobs, so promotion and pay come with movement up into the next rank and this can be achieved by all workers without necessarily changing job content. The tournament element enters because workers are evaluated relative to each other rather than on absolute standards. To achi...
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