Behavior of Participatory Firms in Yugoslavia: Lessons for Transforming Economies

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Abstract
The paper develops a multi-party model of enterprise behavior, with the management, workers and government authorities being the decisionmakers. The model captures the behavior of Yugoslav enterprises in the 1970s and 1980s, enterprises in transitional economies, and public sector bargaining in western countries. Estimating the model on Yugoslav firm-level data from the 1970s and 1980s indicates that the perverse behavior predicted by the Ward-Domar-Vanek model of labor-managed firms is not supported by the data as firms place emphasis on both wages and employment. A direct test shows that the employment response to output price changes is insignificant.

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