The name is absent

and the other parties obtain respectively, 0 for employees Ξ√₇, v for each customer
and V — V for each owner.

Thus, when f' > 1 the bargaining solution under outside ownership is given by:

Agent: employee Sn employee E_ij outside owner O_i customer C_i
share:    V-V         О          V — v          υ

• When f < 1. on the other hand. V — V <υ — υ. so that the bargaining solution is
determined entirely by the outside options in stage 2 and is given by:

Agent: employee £ц employee E_τj outside owner O_i customer C_i
share:      υ — v           O            V — v            υ

These payoffs then translate into the following ex-ante investment choices for the em-
ployees. When f^, > 1 they^, choose their investment in human capital fc_i to maximize:

≡ax{⅛(^λl°8(l + ⅛)) -∕fe)] -*⅛}                (W)

fc¼>υ 4

and when f' < 1 they choose fc_i to maximize:

max{i[Alog(l + k_i) - υ] - ⅛_i}                       (11)

⅛_t>0 4

We thus obtain the following solution for the investment choices under outside owner-
ship.

Lemma 10 The equilibrium human capital investment levels under outside ownership are
given by:

max{0,

where,

_fcO_sf z∕'-W∕'≥ι

I ʌ — 1. otherwise

It is interesting to see competition between firms at work here. When f ≥ 1 perfect
competition gives employees the correct marginal incentives to invest ex ante. But when
f^, < 1. employees will over-invest.

Customer Cooperative

Consider now the case where each customer is also the owner of a firm (or has full
control over the firm's assets). The same natural adaptation of the bargaining game

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