Cite JOURNAL ARTICLE
Efficiency Wages and Negotiated Profit-Sharing under Uncertainty
Applied Economics Quarterly, Vol. 57 (2011), Iss. 2 : pp. 91–105
University of Giessen, Department of Economics—VWL IV, Licher Str. 62 D-39394 Gießen/Germany.
Efficiency wage effects of profit sharing are combined with option values related to stochastic future profit variations. These option effects occur if the workers' profit share is fixed by long-term contracts. The Pareto-improving optimal level of the sharing ratio is calculated for two different scenarios: (1) the firm can unilaterally decide, the expected present value of net profits is maximised; (2) the sharing ratio is based on bilateral Nash bargaining. Since a larger variation of revenues implies a higher redistribution of future profits, the inclusion of expected variations results in a lower worker's profit ratio in both scenarios.
JEL Classification: D81, J33