Do Turnover Costs Protect Insiders?

Henrik Vetter and Torben M Andersen

Economic Journal, 1994, vol. 104, issue 422, 124-30

Abstract: The ability of insiders to extract rents associated with exogenous turnover costs is addressed in a dynamic model. The higher these rents, the higher is the incentives for outsiders to obtain future insider status and, thus, to underbid current insiders. As a consequence, there is a lower limit to the number of insiders that can avoid entrance of outsiders and the insiders cannot in each period obtain a rent equal to the turnover costs. The insider model never explains a lower but may result in a higher employment level than in the case where all workers are wage-takers. Copyright 1994 by Royal Economic Society.

Date: 1994
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