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Experimental effects of institutionalizing co-determination by a procedurally fair bidding rule

Author

Listed:
  • Federica Alberti

    (University of Portsmouth)

  • Werner Güth

    (LUISS Guido Carli and Max Planck Institute for Research on Collective Goods)

  • Kei Tsutsui

    (University of Bath)

Abstract

We experimentally investigate corporate governance of a co-determined firm. The experimental setup confronts the firm’s manager with three employees as stakeholders. There are two investment opportunities, each of which could affect the stakeholders either positively or negatively. First, the manager states his or her demand of the total value of each investment. Then the three stakeholders, knowing the manager’s demands, state their claims via bidding. The bidding rule is procedurally fair by treating all three stakeholders equally as long as stakeholders truthfully state their own values, but offers underbidding incentives. We find that most stakeholder-participants do underbid. The total bids are not significantly different from the managers’ claims. Contrary to game theoretical prediction, manager-participants demand a fair share of the value rather than almost the entire investment value.

Suggested Citation

  • Federica Alberti & Werner Güth & Kei Tsutsui, 2020. "Experimental effects of institutionalizing co-determination by a procedurally fair bidding rule," Working Papers in Economics & Finance 2020-10, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    • Handle: RePEc:pbs:ecofin:2020-10
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    Cited by:

    1. Federica Alberti & Werner Güth & Hartmut Kliemt & Kei Tsutsui, 2020. "Implementing stakeholder participation as “egalitarian bidding” – The test of the Kantian pudding is in the institutionalized eating," Working Papers in Economics & Finance 2020-09, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.

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    More about this item

    Keywords

    corporate management; co-determination; procedural fairness; laboratory experiments;
    All these keywords.

    JEL classification:

    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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