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Goods-market competition and profit sharing: a multisector macro approach

  • John V. Duca
  • David D. VanHoose

This paper develops a theoretical model that relates the degree of goods-market competition with the extent of profit sharing. The authors multisector framework indicates that increased competition in goods markets leads to an increased weighting on firm profits in an optimally indexed contract. Consequently, our model predicts that a rising extent of profit-sharing arrangements in actual U.S. contracts should accompany an increase in the degree of goods-market competition. Available, but limited, data on profit sharing in the United States is generally consistent with this fundamental implication of the model.

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File URL: http://dallasfed.org/assets/documents/research/papers/1997/wp9709.pdf
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Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 9709.

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Date of creation: 1997
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Handle: RePEc:fip:feddwp:97-09
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  1. Weitzman, Martin L, 1983. "Some Macroeconomic Implications of Alternative Compensation Systems," Economic Journal, Royal Economic Society, vol. 93(372), pages 763-83, December.
  2. Weitzman, Martin L, 1985. "The Simple Macroeconomics of Profit Sharing," American Economic Review, American Economic Association, vol. 75(5), pages 937-53, December.
  3. Duca, John V. & Van Hoose, David D., 2001. "The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy," Journal of Macroeconomics, Elsevier, vol. 23(1), pages 1-29, January.
  4. Karni, Edi, 1983. "On Optimal Wage Indexation," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 282-92, April.
  5. Ghosal, Vivek & Loungani, Prakash, 1996. "Evidence on Nominal Wage Rigidity from a Panel of U.S. Manufacturing Industries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 650-68, November.
  6. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
  7. Duca, John V, 1987. "The Spillover Effects of Nominal Wage Rigidity in a Multisector Economy: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 117-21, February.
  8. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
  9. Weitzman, Martin L, 1988. "Comment on "Can the Share Economy Conquer Stagflation?"," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 219-23, February.
  10. Duca, John V. & Vanhoose, David D., 1998. "The Rise of Goods-Market Competition and the Decline in Wage Indexation: A Macroeconomic Approach," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 579-598, July.
  11. Martin L. Weitzman, 1986. "Macroeconomic Implications Of Profit Sharing," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 291-354 National Bureau of Economic Research, Inc.
  12. John V. Duca & David D. VanHoose, 2000. "Has Greater Competition Restrained U.S. Inflation?," Southern Economic Journal, Southern Economic Association, vol. 66(3), pages 729=741, January.
  13. Duca, John V & VanHoose, David D, 1991. "Optimal Wage Indexation in a Multisector Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 859-67, November.
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