The economic analysis of employee representa­ tion (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 re­ cent years from American economists. The most noteworthy exception is the recent paper by Free­ man 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 pro­ grams. 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 vari­ ous forms of committees and councils in deal­ ings with management. It is the latter form that is examined here, although a number of the im­ plications and conclusions also apply to the former.