Embeddedness, cooperation and popular-economy firms in the informal sector

This paper is motivated by empirical observations on popular-economy firms (PEFs) in the informal sector of Santiago de Chile. These are labor-managed firms (LMFs) embedded in a 'popular milieu' where cooperation between thei r members plays a central role. This paper develops a (partial equilibrium) microeconomic theory of PEFs. Endogeneizing the level of cooperation betwe en the workers, the paper develops a static and a dynamic model to analyze whether embeddedness influences the behavior of the PEF. Embeddedness is as sumed to be captured by three different characteristics suggested by the em pirical observations. Most of them influence the employment and income leve ls in the PEF. (C) 2000 Elsevier Science B.V. All rights reserved. JEL clas sification: J3; J33; O17; P13.