Employee Buyout in a Bargaining Game with Asymmetric Information

Avner Ben-Ner, Byoung Heon Jun

Research output: Contribution to journalArticle

20 Citations (Scopus)

Abstract

Why are some firms purchased by their employees? The paper explores this question theoretically, suggesting that employees may attempt to overcome their informational handicap regarding firm profitability by making simultaneous offers on wages and a purchase price for the firm. Owners of relatively unprofitable firms will tend to sell out for low prices instead of paying high wages, whereas owners of profitable firms will prefer to pay high wages over receiving low firm prices; the buyout serves as a screening mechanism. The probability of an employee buyout decreases with the employees' outside options and increases with owners' outside options.

Original languageEnglish
Pages (from-to)502-523
Number of pages22
JournalAmerican Economic Review
Volume86
Issue number3
Publication statusPublished - 1996 Jun 1

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ASJC Scopus subject areas

  • Economics and Econometrics

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