IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

A bargaining theory of the firm

  • Volker Britz

    ()

  • P. Herings

    ()

  • Arkadi Predtetchinski

    ()

Suppose that a firm has several owners and that the future is uncertain in the sense that one out of many different states of nature will realize tomorrow. An owner’s time preference and risk attitude will determine the importance he places on payoffs in the different states. It is a well-known problem in the literature that under incomplete asset markets, a conflict about the firm’s objective function tends to arise among its owners. In this paper, we take a new approach to this problem, which is based on non-cooperative bargaining. The owners of the firm play a bargaining game in order to choose the firm’s production plan and a scheme of transfers which are payable before the uncertainty about the future state of nature is resolved. We analyze the resulting firm decision in the limit of subgame-perfect equilibria in stationary strategies. Given the distribution of bargaining power, we obtain a unique prediction for a production plan and a transfer scheme. When markets are complete, the production plan chosen corresponds to the profit-maximizing production plan as in the Arrow–Debreu model. Contrary to that model, owners typically do use transfers to redistribute profits. When markets are incomplete, the production plan chosen is almost always different from the one in a transfer-free Drèze (pseudo-)equilibrium and again owners use transfers to redistribute profits. Nevertheless, our results do support the Drèze criterion as the appropriate objective function of the firm. Copyright Springer-Verlag Berlin Heidelberg 2013

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1007/s00199-012-0721-3
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Springer in its journal Economic Theory.

Volume (Year): 54 (2013)
Issue (Month): 1 (September)
Pages: 45-75

as
in new window

Handle: RePEc:spr:joecth:v:54:y:2013:i:1:p:45-75
Contact details of provider: Web page: http://link.springer.de/link/service/journals/00199/index.htm

Order Information: Web: http://link.springer.de/orders.htm

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Grossman, Sanford J & Hart, Oliver D, 1979. "A Theory of Competitive Equilibrium in Stock Market Economies," Econometrica, Econometric Society, vol. 47(2), pages 293-329, March.
  2. Mich Tvede & Hervé Crès, 2001. "Voting in Assemblies of shareholders and Incomplete Markets," Sciences Po publications 722/2001, Sciences Po.
  3. Bonnisseau, Jean-Marc & Lachiri, Oussama, 2004. "On the objective of firms under uncertainty with stock markets," Journal of Mathematical Economics, Elsevier, vol. 40(5), pages 493-513, August.
  4. Egbert Dierker & Hildegard Dierker & Birgit Grodal, 2001. "Nonexistence of constrained Efficient Equilibria when Markets are Incomplete," Vienna Economics Papers 0111, University of Vienna, Department of Economics.
  5. Britz Volker & Herings P. Jean-Jacques & Predtetchinski Arkadi, 2008. "Non-cooperative Support for the Asymmetric Nash Bargaining solution," Research Memorandum 018, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  6. Sergiu Hart & Andreu Mas-Colell, 1994. "Bargaining and value," Economics Working Papers 114, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 1995.
  7. DREZE, Jacques H. & LACHIRI, Oussama & MINELLI, Enrico, 2009. "Stock prices, anticipations and investment in general equilibrium," CORE Discussion Papers 2009083, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. DeMarzo, Peter M, 1993. "Majority Voting and Corporate Control: The Rule of the Dominant Shareholder," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 713-34, July.
  9. Egbert Dierker & Hildegard Dierker, 2011. "Ownership structure and control in incomplete market economies with transferable utility," Vienna Economics Papers 1106, University of Vienna, Department of Economics.
  10. Roth, Alvin E, 1989. " Risk Aversion and the Relationship between Nash's Solution and Subgame Perfect Equilibrium of Sequential Bargaining," Journal of Risk and Uncertainty, Springer, vol. 2(4), pages 353-65, December.
  11. Kelsey, David & Milne, Frank, 1996. "The existence of equilibrium in incomplete markets and the objective function of the firm," Journal of Mathematical Economics, Elsevier, vol. 25(2), pages 229-245.
  12. Laruelle, Annick & Valenciano, Federico, 2007. "Bargaining in committees as an extension of Nash's bargaining theory," Journal of Economic Theory, Elsevier, vol. 132(1), pages 291-305, January.
  13. Stefano Demichelis & Klaus Ritzberger, 2011. "A general equilibrium analysis of corporate control and the stock market," Economic Theory, Springer, vol. 46(2), pages 221-254, February.
  14. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-61, July.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:54:y:2013:i:1:p:45-75. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)

or (Christopher F Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.