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Experimental effects of institutionalizing co-determination by a procedurally fair bidding rule

Federica Alberti, Werner Güth () and Kei Tsutsui

No 2020-10, Working Papers in Economics & Finance from University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group

Abstract: We experimentally investigate corporate governance of a co-determined firm. The experimental setup confronts the firm’s manager with three employees as stakeholders. There are two investment opportunities, each of which could affect the stakeholders either positively or negatively. First, the manager states his or her demand of the total value of each investment. Then the three stakeholders, knowing the manager’s demands, state their claims via bidding. The bidding rule is procedurally fair by treating all three stakeholders equally as long as stakeholders truthfully state their own values, but offers underbidding incentives. We find that most stakeholder-participants do underbid. The total bids are not significantly different from the managers’ claims. Contrary to game theoretical prediction, manager-participants demand a fair share of the value rather than almost the entire investment value.

Keywords: corporate management; co-determination; procedural fairness; laboratory experiments (search for similar items in EconPapers)
JEL-codes: C92 J52 J54 (search for similar items in EconPapers)
Pages: 37
Date: 2020-05-29
New Economics Papers: this item is included in nep-exp, nep-gth and nep-law
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