A Note on Comparative Statics for a Labor - Managed Firm Engaged in Exporting

Abstract

The behavior of a labor - managed firm (LMF) producing both for the domestic market and for export is analyzed assuming that it competes with a foreign profit - maximizing firm (PMF) in the export market. Conventional wisdom suggests that a LMF facing an increase of demand in the foreign market will cut sales in this market. We show that, with high enough sales in the domestic market, the LMF will sell less at home and more abroad after an introduction of an export subsidy. We also show that, under the same condition, the LMF will increase foreign sales after a devaluation of the domestic currency. Thus, the LMF reacts in a similar manner to that of a PMF. Hence, this paper reverses the conditional wisdom and extends the results of Mai and Hwang (1989) and Okuguchi (1991).

Keywords: labor - managed firm, mixed duopoly

JEL Classification: L13, L21, F12