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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. 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.
    3. Avner Ben-Ner, 2006. "For-Profit, State and Non-Profit: How to Cut the Pie Among the Three Sectors," Chapters, in: Jean-Philippe Touffut (ed.), Advancing Public Goods, chapter 2, Edward Elgar Publishing.
    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. Guidi, Marco G.D. & Hillier, Joe & Tarbert, Heather, 2010. "Successfully reshaping the ownership relationship by reducing ‘moral debt’ and justly distributing residual claims: The cases from Scott Bader Commonwealth and the John Lewis Partnership," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 21(4), pages 318-328.
    6. Sung-Hyuk Ko & Byoung Heon Jun, 2007. "Informational Disadvantage and Bargaining Power," Discussion Paper Series 0711, Institute of Economic Research, Korea University.
    7. 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.
    8. 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.
    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. Chong-En Bai & Chenggang Xu, 2001. "Ownership, Incentives and Monitoring," STICERD - Theoretical Economics Paper Series 413, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    11. Mikami, Kazuhiko, 2010. "Capital procurement of a consumer cooperative: Role of the membership market," Economic Systems, Elsevier, vol. 34(2), pages 178-197, June.
    12. repec:zbw:bofitp:2003_007 is not listed on IDEAS
    13. Dow,Gregory K., 2019. "The Labor-Managed Firm," Cambridge Books, Cambridge University Press, number 9781107589650.
    14. 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.
    15. Kazuhiko Mikami & Satoru Tanaka, 2010. "Sunk Costs Of Capital And The Form Of Enterprise: Investor‐Owned Firms And Worker‐Owned Firms," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 81(1), pages 77-104, March.
    16. 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.
    17. Hueth, Brent & Marcoul, Philippe, 2007. "The Cooperative Firm as Monitored Credit," Staff Papers 92122, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    18. Brent Hueth & Philippe Marcoul, 2015. "Agents Monitoring Their Manager: A Hard‐Times Theory of Producer Cooperation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(1), pages 92-109, March.

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