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Bargaining with a Shared Interest: The Impact of Employee Stock Ownership Plans on Labor Disputes

Bargaining often occurs between parties with some shared interest. Partnerships, joint ventures, and cross ownership are examples. We extend standard bargaining models to allow for joint ownership. Joint ownership reduces costly bargaining disputes, as bargainers’ interests are more aligned. We then test the theory with collective bargaining data, where employee stock ownership plans (ESOPs) are the source of joint ownership. The theory predicts that ESOPs will lead to a reduction in strike incidence and the fraction of labor disputes that involve a strike. We examine these predictions using U.S. bargaining data from 1970-1995. The data suggest that ESOPs do increase the efficiency of labor negotiations by shifting the composition of disputes away from costly strikes. Consistent with improved bargaining efficiency, we find that the announcement of a union ESOP leads to a 50% larger stock market reaction as compared to the announcement of a nonunion ESOP.

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File URL: http://www.cramton.umd.edu/papers2005-2009/cramton-mehran-tracy-esop-fables.pdf
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Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 98wpesop.

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Length: 21 pages
Date of creation: Jun 2010
Date of revision: Jun 2010
Handle: RePEc:pcc:pccumd:98wpesop
Note: Working Paper
Contact details of provider: Postal: Economics Department, University of Maryland, College Park, MD 20742-7211
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Web page: http://www.cramton.umd.edu

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  1. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  2. Chang, Saeyoung & Mayers, David, 1992. "Managerial vote ownership and shareholder wealth *1: Evidence from employee stock ownership plans," Journal of Financial Economics, Elsevier, vol. 32(1), pages 103-131, August.
  3. Abowd, John M, 1989. "The Effect of Wage Bargains on the Stock Market Value of the Firm," American Economic Review, American Economic Association, vol. 79(4), pages 774-800, September.
  4. Christofides, L.N., 1989. "The Interaction Between Indexation, Contract Duration And Non-Contengent Wage Adjustment," Working Papers 1989-13, University of Guelph, Department of Economics and Finance.
  5. Gordon, Lilli A. & Pound, John, 1990. "ESOPs and corporate control," Journal of Financial Economics, Elsevier, vol. 27(2), pages 525-555, October.
  6. Cramton, Peter C & Tracy, Joseph S, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," American Economic Review, American Economic Association, vol. 82(1), pages 100-121, March.
  7. Joseph S. Tracy, 1988. "Testing Strategic Bargaining Models Using Stock Market Data," NBER Working Papers 2754, National Bureau of Economic Research, Inc.
  8. Motohiro Morishima, 1991. "Information sharing and collective bargaining in Japan: Effects on wage negotiation," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 44(3), pages 469-485, April.
  9. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
  10. Douglas Kruse & Joseph Blasi, 1995. "Employee Ownership, Employee Attitudes, and Firm Performance," NBER Working Papers 5277, National Bureau of Economic Research, Inc.
  11. Tracy, J. & Ohtake, F., 1992. "The Determinants of Labor Disputes in Japan : A Comparison with the US," ISER Discussion Paper 0282, Institute of Social and Economic Research, Osaka University.
  12. Douglas L. Kruse, 1993. "Profit Sharing: Does It Make a Difference?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ps, June.
  13. Vroman, Susan B, 1989. "Inflation Uncertainty and Contract Duration," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 677-81, November.
  14. Myron S. Scholes & Mark A. Wolfson, 1989. "Employee Stock Ownership Plans and Corporate Restructuring: Myths and Realities," NBER Working Papers 3094, National Bureau of Economic Research, Inc.
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