Contract-theoretic analyses of consultants and trade unions

Sammanfattning: Why can junior management consultants bill four-digit dollar amounts a day for working with corporations and industries where they have no experience? Why do blue-collar workers organise in industry-specific unions involved in collective wage bargaining, while white-collars organise according to educational or professional background, offering résumé proof-reading, or don’t unionise at all? The doctoral thesis Contract-Theoretic Analyses of Consultants and Trade Unions consists of three self-containing essays in Economics of Organisation. What Do Consultants Do? asks why firms pay large fees to outsiders in core activities like management. Standard explanations that see the consultant only as an expert fail to rationalize several industry phenomena. This paper instead focuses on the consultant’s role as a truth-teller in governance. The model finds a trade-off between being an expert and being a truth-teller, and that branding is more important for the latter category. Furthermore, there are natural barriers to entry among truth-tellers, which helps explain the high fees of the most well-renowned players. The Nature of Management Consulting evaluates the theoretical results in the previous chapter. Using market data from Sweden, the study finds that the upward price effect associated with a global brand is smaller for consultants with a broad range of services than for those with a narrow focus. This is hard to reconcile with the expertise explanations, but is consistent with the truth-telling theory. Interviews with experienced management consultants support this interpretation and several other predictions from the truth-telling theory. A Guild Theory of the Trade Union is an independent essay, developing a model where unions, like pre-industrialisation guilds, strike a balance between strengthening the bargaining position and fostering human capital. It links the organisational form of unions to investments in human capital and bargaining power. The predictions resemble evidence from the Nordic labour market. Groups with white-collar characteristics will be more prone to form profession-specific unions and advocate individual bargaining than blue-collar groups. Furthermore, there is path dependency in union formation, which fits the international pattern of unionisation rates.