We explore how the modeling of effort as a factor in production affects the relative
productivity of labor-managed and capitalist firms. Using simple models of
privately-owned and labor-managed firms, we show that the more important the
role of effort in production, the greater the differences in the efficiency of the two
types of firms even if monitoring remains fixed. The results show that even minor
differences in the extraction of effort can cause large changes in output and efficiency.
We draw implications from our results for the viability of labor-managed
firms and cooperatives.
