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Shut Down Option and Profit Sharing

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  • M. Moretto
  • G. Rossini

Abstract

Aoki's profit sharing firm organization is associated with the option evaluation model of investment. The firm is endowed with a shut down option it can exercise when the market price, assumed uncertain, falls below a certain trigger level. The distributive parameter is the result of a bargaining process and it is influenced by the shut down option. Workers can delay the firm's shut down by sharing not only profits but also losses. In that case the workers' policy changes both the optimal distributive parameter and the trigger price in a non trivial way. The overall result implies an increase of the profit share going to shareholders as compared to the original Aoki's finding.

Suggested Citation

  • M. Moretto & G. Rossini, 1994. "Shut Down Option and Profit Sharing," Working Papers 190, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:190
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    File URL: http://amsacta.unibo.it/5136/1/190.pdf
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    Cited by:

    1. Di Corato, Luca, 2013. "Profit sharing under the threat of nationalization," Resource and Energy Economics, Elsevier, vol. 35(3), pages 295-315.
    2. S. Pastorello & M. Moretto, 1995. "Entry-Exit Timing and Profit Sharing," Working Papers 228, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Michele Moretto & Gianpaolo Rossini, 1996. "Profit sharing regulation and repeated bargaining with a shut-down option," Review of Economic Design, Springer;Society for Economic Design, vol. 2(1), pages 339-368, December.

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