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 Eij outside owner Oi customer Ci
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 Eτj outside owner Oi customer Ci
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 fci to maximize:
≡ax{⅛(λl°8(l + ⅛)) -∕fe)] -*⅛} (W)
fc¼>υ 4
and when f' < 1 they choose fci to maximize:
max{i[Alog(l + ki) - υ] - ⅛i} (11)
⅛t>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,
fcOsf 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
More intriguing information
1. Migration and Technological Change in Rural Households: Complements or Substitutes?2. Why unwinding preferences is not the same as liberalisation: the case of sugar
3. A Bayesian approach to analyze regional elasticities
4. PROPOSED IMMIGRATION POLICY REFORM & FARM LABOR MARKET OUTCOMES
5. Solidaristic Wage Bargaining
6. The name is absent
7. AN IMPROVED 2D OPTICAL FLOW SENSOR FOR MOTION SEGMENTATION
8. THE INTERNATIONAL OUTLOOK FOR U.S. TOBACCO
9. Sectoral Energy- and Labour-Productivity Convergence
10. The name is absent