The name is absent



It is easy to see that the first best solution of the social planners program is

*⅛ = ɪ (ʌɪ + ʌ2) + T (ɪ - ⅜) Am - I-


Partnership


In this case, we suppose that only one of the employees is the owner (partner) of the
firm. When a good employee is the owner, then the value of the firm is
Vs. 5 = 1,2.
Since in the economy there is an over supply of ordinary employees, a bad employee does
not produce value and the bargaining solution is given by:

Agent: partner E9 employee Em employee Eb customer Cx
share:    
V — urn υm — υb          0            vb

where, g = 1,2: m == 3.4: and b = 5,6.

If the owner is a middle employee, when ∕' > 1, then bargaining solution is the follow-
ing:10

Agent: employee E1

share:    V1V2

in the case that the firm hires E1 :

Agent: employee E2
share:        υ2

in the case that the firm hires E2.

If the owner is a bad employee, then bargaining solution is the following.

Agent: employee F1 employee Em partner Eb
share:    V1 -V2 υrn — υb V2 — υm

in the case that the firm hires Ex : or

Agent: employee E2 employee Em partner Eb


partner Em

V2b

or

partner Em

V*22b


employee Eb
0

employee Eb
0


customer Ct

υb

customer C,
vb


customer Ci
υb


customer Сг


share:     v2 — vb υτn — υb V2 + vb — υ2 — υm υb

in the case that the firm hires E2.

Hence, the partner and non-partner employees Ep and En choose their human capital
investments,
kp and kn. to solve respectively:

≡∙×{⅞∑Kλ' lo≡(1 - M ÷ ⅛2 Σ Kyn 1°8(1 ÷ fcp)) - M (15)
0=l                        m=J

10VVe suppose that Vd - V’2 > vɪ.


'27




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