Lifetime employment contract and reaction functions of profit-maximizing and labor-managed firms
AbstractThis paper considers a model in which a profit-maximizing firm and a labor-managed income-per-worker-maximizing firm are allowed to offer lifetime employment as a strategic commitment. First, both firms simultaneously and independently decide whether to offer lifetime employment. If a firm offers lifetime employment, then it chooses an output level and enters into a lifetime employment contract with the number of employees necessary to achieve the output level. Second, both firms simultaneously and independently choose actual outputs. The paper shows that if the labor-managed firm does not offer lifetime employment, then its reaction function is upward sloping, whereas if it does, then its reaction function changes to downward sloping. The paper also finds that there may be two stable equilibria.
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Bibliographic InfoArticle provided by Elsevier in its journal Research in Economics.
Volume (Year): 65 (2011)
Issue (Month): 3 (September)
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Web page: http://www.elsevier.com/locate/inca/622941
Lifetime employment contract Reaction function Profit-maximizing firm Labor-managed firm;
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