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Employee Buyout in a Bargaining Game with Asymmetric Information

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  • Ben-Ner, Avner
  • Jun, Byoung

Abstract

Why are some firms purchased by their employees? This paper explores this question theoretically, suggesting that employees may attempt to overcome their informational handicap regarding firm profitability by making simultaneous offers on wages and a purchase price for the firm. Owners of relatively unprofitable firms will tend to sell out for low prices instead of paying high wages, whereas owners of profitable firms will prefer to pay high wages over receiving low firm prices; the buyout serves as a screening mechanism. The probability of an employee buyout decreases with the employees' outside options and increases with owners' outside options. Copyright 1996 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 86 (1996)
Issue (Month): 3 (June)
Pages: 502-23

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Handle: RePEc:aea:aecrev:v:86:y:1996:i:3:p:502-23

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Cited by:
  1. Derek C. Jones & Panu Kalmi & Niels Mygind, 2003. "Choice of ownership structure and firm performance: Evidence from Estonia," Macroeconomics 0305008, EconWPA.
  2. Brent Hueth & Philippe Marcoul & Roger G. Ginder, 2004. "Cooperative Formation and Financial Contracting in Agricultural Markets," Center for Agricultural and Rural Development (CARD) Publications 03-wp349, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  3. Chong-En Bai & Cheng-Gang Xu, 2001. "Ownership, incentives and monitoring," LSE Research Online Documents on Economics 3750, London School of Economics and Political Science, LSE Library.
  4. Burdín, Gabriel & Dean, Andrés, 2009. "New evidence on wages and employment in worker cooperatives compared with capitalist firms," Journal of Comparative Economics, Elsevier, vol. 37(4), pages 517-533, December.
  5. Avner Ben-Ner, . "For-Profit, State, and Nonprofit: How to Cut the Pie Among the Three Sectors," Working Papers 0304, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
  6. Peter Cramton & Hamid Mehran & Joseph Tracy, 2008. "ESOP fables: the impact of employee stock ownership plans on labor disputes," Staff Reports 347, Federal Reserve Bank of New York.
  7. Mikami, Kazuhiko, 2010. "Capital procurement of a consumer cooperative: Role of the membership market," Economic Systems, Elsevier, vol. 34(2), pages 178-197, June.
  8. Elli Kraizberg & Vassilios N. Gargalas, 2002. "Why New Ventures Grant Employee-Stock-Options," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 7(2), pages 83-103, Summer.
  9. Ann Horowitz & Ira Horowitz, 1999. "Quality choice: Does it matter which workers own and manage the cooperative firm?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 27(4), pages 394-409, December.
  10. Sung-Hyuk Ko & Byoung Heon Jun, 2007. "Informational Disadvantage and Bargaining Power," Discussion Paper Series 0711, Institute of Economic Research, Korea University.
  11. Hueth, Brent & Marcoul, Philippe, 2007. "The Cooperative Firm as Monitored Credit," Staff Paper Series 508, University of Wisconsin, Agricultural and Applied Economics.

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