The economic analysis of employee representation (ER) has followed two very different tracks. The economics literature on trade union forms of employee representation is voluminous and dates back more than a century. In contrast, nonunion forms of employee representation, such as shop committees, works councils, and company unions, have received only scant attention in recent years from American economists. The most noteworthy exception is the recent paper by Freeman and Lazear (1995) that applies economic theory to an examination of European-style works councils. Also relevant is a small but growing literature in economics, such as studies by Levine and Tyson (1990), Ben-Ner and Jones (1995), and Levine (1995), which examines the theoretical underpinnings of employee involvement programs. As noted there, participation can take two forms: direct participation, in which employees communicate and interact with management; and indirect participation, in which employees are represented by certain of their peers through various forms of committees and councils in dealings with management. It is the latter form that is examined here, although a number of the implications and conclusions also apply to the former.