Risk and Lack of Diversification under Employee Ownership and Shared Capitalism

http://www.nber.org/chapters/c8088.pdf
Authors: Markowitz, Harry M.; Blasi, Joseph; Kruse, Douglas
Source: Forthcoming from University of Chicago Press
Year: 2008
Number of pages: 46

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Abstract:

Some analysts view risk as the Achilles Heel of employee ownership and to some extent variable pay plans such as profit sharing and gain sharing. Workers in such “shared capitalist” firms may invest too much of their wealth in the firm, contrary to the principle of diversification. This paper addresses whether the risk in shared capitalism makes it unwise for most workers or whether the risk can be managed to limit much of the loss of utility from holding the extra risk.