In this paper a new way of distinguishing between cooperative and non-cooperative organizations is introduced. This distinction is based on well-known solution concepts and is applied to the problem of organizing production teams in a firm. Our first results demonstrates that income-sharing cooperative firms are not necessarily inefficient as suggested in the work of Alchian and Demsetz (1972) and Holmstrom (1982). Secondly, it is shown that if a capitalist firm is interpreted as a non-cooperative organization, then it must be less efficient than corresponding cooperative organizations due to the additional monitoring of workers needed to stop shirking.
