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Entry-Exit Timing and Profit Sharing

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  • S. Pastorello
  • M. Moretto

Abstract

We analyze the effects of two compound investment options, a shut down and a reopening option, on a Aoki's pro t sharing rm organization. Whilst the introduction of a credible threat of shutting down weakens labour's position in the bargaining and favors the shareholders on profit sharing, the option to reopen the plant acts in the opposite direction, reducing the abandoning threat and reinforcing the workers' bargaining power. More speci cally, as long as an increase in uncertainty leads to an increase in the bene t from reopening, and hence in the rm's market value, the overall result implies a weakening of the shut down threat and the pro t distribution process becomes more favorable to workers.

Suggested Citation

  • S. Pastorello & M. Moretto, 1995. "Entry-Exit Timing and Profit Sharing," Working Papers 228, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:228
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    1. M. Moretto & G. Rossini, 1994. "Shut Down Option and Profit Sharing," Working Papers 190, Dipartimento Scienze Economiche, Universita' di Bologna.
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    Cited by:

    1. 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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