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Compensation and Bargaining with Entrepreneurship as the Outside Option

Author

Listed:
  • Koskela, E.
  • Stenbacka, R.

Abstract

We analyze the impact of entrepreneurship as an outside option on compensation contracts between a principal and an agent with bargaining power. In the first stage the parties bargain over the base wage and the profit share. In the second stage the principal determines the capital investment and the agent decides on effort.

Suggested Citation

  • Koskela, E. & Stenbacka, R., 2000. "Compensation and Bargaining with Entrepreneurship as the Outside Option," University of Helsinki, Department of Economics 479, Department of Economics.
    • Handle: RePEc:fth:helsec:479
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    References listed on IDEAS

    as
    1. Koskela, E. & Stenbacka, R., 2000. "Capital Structure, Wage Bargaining and Employment," University of Helsinki, Department of Economics 475, Department of Economics.
    2. Jurgen Jerger & Jochen Michaelis, 1999. "Profit Sharing, Capital Formation and the NAIRU," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(2), pages 257-275, June.
    3. Weitzman, Martin L, 1987. "Steady State Unemployment under Profit Sharing," Economic Journal, Royal Economic Society, vol. 97(385), pages 86-105, March.
    4. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
    5. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
    6. Cressy, Robert, 2000. "Credit rationing or entrepreneurial risk aversion? An alternative explanation for the Evans and Jovanovic finding," Economics Letters, Elsevier, vol. 66(2), pages 235-240, February.
    7. repec:bla:scandj:v:101:y:1999:i:2:p:257-75 is not listed on IDEAS
    8. Kanbur, S M Ravi, 1982. "Entrepreneurial Risk Taking, Inequality, and Public Policy: An Application of Inequality Decomposition Analysis to the General Equilibrium Effects of Progressive Taxation," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 1-21, February.
    9. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    10. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    11. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-748, August.
    12. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 334-347, Summer.
    13. Sanfey, Peter J., 1993. "On the interaction between efficiency wages and union-firm bargaining models," Economics Letters, Elsevier, vol. 41(3), pages 319-324.
    14. JOHN CREEDY & IAN M. McDONALD, 1991. "Models of Trade Union Behaviour: A Synthesis," The Economic Record, The Economic Society of Australia, vol. 67(4), pages 346-359, December.
    15. Maitreesh Ghatak & Massimo Morelli & Tomas Sjostrom, 1997. "General Equilibrium Incentives and the American Dream," Harvard Institute of Economic Research Working Papers 1812, Harvard - Institute of Economic Research.
    16. Weitzman, Martin L, 1985. "The Simple Macroeconomics of Profit Sharing," American Economic Review, American Economic Association, vol. 75(5), pages 937-953, December.
    17. repec:bla:ecorec:v:67:y:1991:i:199:p:346-59 is not listed on IDEAS
    18. Bulkley, George & Myles, Gareth D, 1996. "Trade Unions, Efficiency Wages, and Shirking," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 75-88, January.
    19. repec:zbw:bofrdp:2000_016 is not listed on IDEAS
    20. Altenburg, Lutz & Straub, Martin, 1998. "Efficiency Wages, Trade Unions, and Employment," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 726-746, October.
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    Citations

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    Cited by:

    1. Omonbude, Ekpen J., 2007. "The transit oil and gas pipeline and the role of bargaining: A non-technical discussion," Energy Policy, Elsevier, vol. 35(12), pages 6188-6194, December.
    2. Richard Fairchild, 2004. "Financial Contracting Between Managers And Venture Capitalists: The Role Of Value‐Added Services, Reputation Seeking, And Bargaining Power," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 27(4), pages 481-495, December.
    3. Rune Stenbacka, 2002. "Microeconomic Policies in the New Economy," Finnish Economic Papers, Finnish Economic Association, vol. 15(2), pages 59-75, Autumn.
    4. Subramanian, Narayanan, 2005. "The economics of intrapreneurial innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 58(4), pages 487-510, December.

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    More about this item

    Keywords

    ENTREPRENEURSHIP ; BARGAINING ; LABOUR MARKET ; WAGES;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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