Profit sharing regulation and repeated bargaining with a shut-down option |
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Authors: | Michele Moretto Gianpaolo Rossini |
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Institution: | (1) Dipartimento di Scienze Economiche, University of Padova, Via del Santo, 22, I-35123 Padua, Italy;(2) Dipartimento di Scienze Economiche, University of Bologna, Strada Maggiore, 45, I-40125 Bologna, Italy |
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Abstract: | We analyze the behavior of a firm where workers share profits with shareholders by using a model cast in an Aoki framework.
There are two sorts of uncertainties: one relates to the market price, assumed to follow a random path in continuous time,
while the other concerns internal organization, i.e. the share of profits to be distributed between workers and shareholders.
In the institutional setting we adopt the firm is flexible, since it has the possibility of shutting down, by paying laid
off workers a bonus, which represents a sunk cost. The distributive share is determined in the firm's internal labor market
through a bargaining that takes place at two occasions: at the beginning of the firm's life and when profits reach a threshold
level. The second bargaining is endogenized according to a procedure imposed upon shareholders and workers by a regulator
who may use profit distribution as a way to intervene in the firm's internal labor market. Specificities make this market
highly imperfect. Different share parameter patterns result, owing to a shut down option, according to whether (a) the regulator
calls for renegotiation when profits are increasing or decreasing, (b) the regulator's rule is announced in advance or is
discretionally set. |
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Keywords: | L20 D92 |
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