By the early 1990s employee stock ownership plans (ESOPs) had become as prevalent in unionized firms as in nonunionized firms. However, little research has been devoted to examining the implications of ESOPs for collective bargaining, or cross ownership more generally. In this paper, we extend the signaling model of Cramton and Tracy (1992) to allow partial ownership by the union. We demonstrate that ESOPs create incentives for unions to become weaker bargainers. As a result, the model predicts that ESOPs will lead to a reduction in strike incidence and in the fraction of labor disputes that involve a strike. We examine these predictions using U.S. bargaining data from 1970-1995. The data suggest that ESOPs do increase the efficiency of labor negotiations by shifting the composition of disputes away from costly strikes. Consistent with improved bargaining efficiency, we find that the announcement of a union ESOP leads to a 50% larger stock market reaction as compared to the announcement of a nonunion ESOP.
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Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number
98wpesop.
Length: 21 pages Date of creation: Sep 2008 Date of revision:
Sep 2008 Handle: RePEc:pcc:pccumd:98wpesop
Note: Working Paper Contact details of provider: Postal: Economics Department, University of Maryland, College Park, MD 20742-7211 Phone: (202) 318-0520 Fax: (202) 318-0520 Web page: http://www.cramton.umd.edu
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Find related papers by JEL classification: C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
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