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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.

Suggested Citation

  • Ben-Ner, Avner & Jun, Byoung, 1996. "Employee Buyout in a Bargaining Game with Asymmetric Information," American Economic Review, American Economic Association, vol. 86(3), pages 502-523, June.
  • Handle: RePEc:aea:aecrev:v:86:y:1996:i:3:p:502-23
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    Cited by:

    1. Derek Jones & Panu Kalmi & Niels Mygind, 2005. "Choice of Ownership Structure and Firm Performance: Evidence from Estonia," Post-Communist Economies, Taylor & Francis Journals, vol. 17(1), pages 83-107.
    2. Avner Ben-Ner, 2006. "For-Profit, State and Non-Profit: How to Cut the Pie Among the Three Sectors," Chapters,in: Advancing Public Goods, chapter 2 Edward Elgar Publishing.
    3. 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.
    4. Sung-Hyuk Ko & Byoung Heon Jun, 2007. "Informational Disadvantage and Bargaining Power," Discussion Paper Series 0711, Institute of Economic Research, Korea University.
    5. Bai, Chong-En & Xu, Cheng-Gang, 2001. "Ownership, incentives and monitoring," LSE Research Online Documents on Economics 3750, London School of Economics and Political Science, LSE Library.
    6. Chong-En Bai & Yijiang Wang, 2003. "Uncertainty in Labor Productivity and Specific Human Capital Investment," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 651-676, July.
    7. Ann Horowitz & Ira Horowitz, 1999. "Quality choice: Does it matter which workers own and manage the cooperative firm?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 27(4), pages 394-409, December.
    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. 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.
    10. 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.
    11. Hueth, Brent & Marcoul, Philippe, 2007. "The Cooperative Firm as Monitored Credit," Staff Paper Series 508, University of Wisconsin, Agricultural and Applied Economics.
    12. Mikami, Kazuhiko, 2010. "Capital procurement of a consumer cooperative: Role of the membership market," Economic Systems, Elsevier, vol. 34(2), pages 178-197, June.

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