Entry-Exit Timing and Profit Sharing

S. Pastorello and Michele Moretto

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: We analyze the effects of two compound investment options, a shut down and a reopening option, on a Aoki's pro t sharing rm organization. Whilst the introduction of a credible threat of shutting down weakens labour's position in the bargaining and favors the shareholders on profit sharing, the option to reopen the plant acts in the opposite direction, reducing the abandoning threat and reinforcing the workers' bargaining power. More speci cally, as long as an increase in uncertainty leads to an increase in the bene t from reopening, and hence in the rm's market value, the overall result implies a weakening of the shut down threat and the pro t distribution process becomes more favorable to workers.

Date: 1995-09
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:228

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