Employee Ownership
Finalh'. consider the situation where' each firm is jointly owned by two employees. The
adaptation of the bargaining game under emploʌ-ee ownership we consider is to let each
pair of employees first agree on a take-it-or-leave-it offer to their respective customers, to
themselves as potential employees of the firm, and to the other two employees. As before,
we assume that employees divide equally the surplus they can get as owners. Once the
firms' offers are determined the game proceeds as under outside ownership. That is.
employees and customers choose whether to accept one of the offers or reject all of them:
if a firm has an offer accepted by it:s customer and by at least one employee the game
ends for that firm: if the firm's offer is rejected by either the customer or by all the
employees then the game moves to a second stage (for that firm) where services can only
be provided outside the firm's premises and the employees make take-it-or-leave-it offers
to the remaining customers): the customer(s) then accept(s) or reject(s) the offer and
the game ends.
Solving this game backwards:
• Bertrand competition between employees results in equilibrium pawffs in the second
stage of the bargaining game where employee Eu gets υ — υ. each customer C1 gets
v, and the other employees E⅛ get 0.
• In the first stage of the game, when ff > 1. Bertrand competition for the good
employee results in a wage for employee En of V — V and a wage of 0 for the other
empiθ}∙ees. Each customer gets v and the four employee-owners each get ⅜(V — √).
Thus, when f, > 1 the bargaining solution under employee cooperative is given by:
Agent: employee En employee Eij outside owner Oi customer Ci
share: Vr-⅜(V + υ) ⅛(K~v) 0 υ
• When ff < 1. so that. V — У < υ — υ, the bargaining solution is:
Agent: employee En employee Eij outside owner Oi customer С»
share: ⅛(F+V)--v ⅜(V-t7) 0 v
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 ki to maximize:
max{l∕(λlog(l ÷ fci)) — ⅛,} (13)
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