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Bargaining with a Shared Interest: The Impact of Employee Stock Ownership Plans on Labor Disputes

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Abstract

Bargaining often occurs between parties with some shared interest. Partnerships, joint ventures, and cross ownership are examples. We extend standard bargaining models to allow for joint ownership. Joint ownership reduces costly bargaining disputes, as bargainers’ interests are more aligned. We then test the theory with collective bargaining data, where employee stock ownership plans (ESOPs) are the source of joint ownership. The theory predicts that ESOPs will lead to a reduction in strike incidence and 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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  • Peter Cramton & Hamid Mehran & Joseph Tracy, 2010. "Bargaining with a Shared Interest: The Impact of Employee Stock Ownership Plans on Labor Disputes," Papers of Peter Cramton 98wpesop, University of Maryland, Department of Economics - Peter Cramton, revised Jun 2010.
    • Handle: RePEc:pcc:pccumd:98wpesop
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    File URL: https://www.cramton.umd.edu/papers2005-2009/cramton-mehran-tracy-esop-fables.pdf
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    References listed on IDEAS

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    1. Tracy, J. & Ohtake, F., 1992. "The Determinants of Labor Disputes in Japan : A Comparison with the US," ISER Discussion Paper 0282, Institute of Social and Economic Research, Osaka University.
    2. repec:bla:econom:v:57:y:1990:i:227:p:395-409 is not listed on IDEAS
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    More about this item

    Keywords

    Bargaining; collective bargaining; ESOP; cross ownership; joint venture; strikes; dispute resolution; dispute costs;
    All these keywords.

    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
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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