| Employee and management stock ownership, interfirm cross-ownership of equity, partial government ownership, and other forms of equity sharing are common ownership structures in market economies and are particularly frequent in transitional economies. Concentrating on employee stock ownership as an example, this dissertation considers the effect of equity sharing on the following problems: (1) underinvestment due to the holdup problem, (2) underemployment or overemployment due to collective bargaining, and (3) underproduction due to the dynamic incentive problem.; The holdup problem arises when incomplete ex ante contracts lead the firm or workers to underinvest because ex post bargaining allows the other party to capture part of the surplus produced by investment. Equity-holding workers share in firm profits not only in agreement (when a new contract is reached) but also in disagreement (when a work stoppage or replacement of workers lowers profits), thereby aligning worker and firm bargaining positions. Since the bargaining positions of both parties move in concert, actions designed to strengthen or protect a party's bargaining position are less successful in winning the party a larger share of the surplus, leading both parties to concentrate instead on enlarging the surplus. The result is higher, more efficient investment levels.; The employment problem is analyzed using an insider-outsider model in which the union utility function represents only the interests of insiders.; This dissertation suggests a number of previously unrecognized efficiency gains from equity sharing. In most cases these gains can only realized by equity sharing rather than by other forms of profit sharing which are not backed up by an equity stake. In some cases these gains can only be realized if particular restraints are enforced, for instance limitations on equity resale rights. The observed institutional features of many forms of equity sharing, including Employee Stock Ownership Plans and stock option contracts, are argued to be consistent with the restrictions suggested by these models. (Abstract shortened by UMI.)... |
