Efficiency Wages and Negotiated Profit-Sharing under Uncertainty

Matthias Göcke ()

Applied Economics Quarterly (formerly: Konjunkturpolitik), 2011, vol. 57, issue 2, 91-105

Abstract: Efficiency wage effects of profit sharing are combined with option values related to stochastic future profit variations. These option effects occur if the workers' profit share is fixed by long-term contracts. The Pareto-improving optimal level of the sharing ratio is calculated for two different scenarios: (1) the firm can unilaterally decide, the expected present value of net profits is maximised, (2) the sharing ratio is based on bilateral Nash bargaining. Since a larger variation of revenues implies a higher redistribution of future profits, the inclusion of expected variations results in a lower worker's profit ratio in both scenarios.

Keywords: efficiency wage; profit sharing; Nash bargaining; uncertainty (search for similar items in EconPapers)
JEL-codes: D81 J33 (search for similar items in EconPapers)
Date: 2011
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Working Paper: Efficiency Wages and Negotiated Profit-Sharing under Uncertainty (2009)
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