Profit Sharing, Employment and Investment

Lars Haagen Pedersen
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Lars Haagen Pedersen: Institute of Economics, University of Copenhagen

No 88-02, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This article introduces investments into the discussion of the properties of the share economy. We show that gross profit sharing gives biased incentives to the owners of the firm such that the stationary state capital stock is lower than in the wage economy when the payment to the workers is held constant. Production and employment might be both lower and higher than in the wage economy. Finally we show that this share arrangement does not result in a Pareto improvement in an economy with owners and workers. Introduction of cash flow sharing removes the biased incentives and thus production, employment, and the capital stock is higher than in the wage economy with the same payment to the workers. But in this case, too, the share arrangement does not result in a Pareto improvement.

Pages: 24 pages
Date: 1988-02
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:8802

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