Wage Concessions and Debt Forgiveness as Strategic Responses to Financial Distress

David Margolis and Pascale Viala

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Abstract: We propose a model of strategic interactions betweeen a firm, its workers and its creditors in a dynamic, uncertain environment. We show that the firm can play if one stakeholder against another increases the likehood and magnitude of concessions being made, either on a bilateral or trilateral basis. Debt is shown to undermine the firm's ability to commit to an increasing wage-seniority profile, which brings about the classic Williamson (1985) holdup phenomenon when workers invest in firm-specific human capital.

Keywords: Bankruptcy; Compensation Policy; Contracts; Debt; Financial Distress; Holdup; Human Capital; Renegociation; Faillite; Politique de rémunération; Contrats; Dette; Détresse financière; Hold-up; Capital humain (search for similar items in EconPapers)
Date: 1997-09
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Published in European Economic Association annual meetings, Sep 1997, Toulouse, France

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Related works:
Working Paper: Wage Concessions and Debt Forgiveness as Strategic Responses to Financial Distress (1998)
Working Paper: Wage Concessions and Debt Forgiveness as Strategic Responses to Financial Distress (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00377913

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