Uncertainty, hiring and firing costs, and the determinants of profit-sharing rules

Jyh Bang Jou, Tan Lee

Research output: Contribution to journalArticlepeer-review

Abstract

We consider a firm run by a manager who acts on behalf of shareholders. The firm produces a commodity whose demand evolves stochastically over time. The firm's employees possess firm-specific skills and knowledge and thus can bargain over profits with shareholders immediately before the firm hires or fires workers. The firm will distribute more portions of profits to employees when it incurs higher costs to hire or fire workers. In addition, as uncertainty in demand increases, the firm will distribute smaller (larger) portions of profits to employees if the firm does not have the option to fire (hire) workers.

Original languageEnglish
Pages (from-to)185-197
Number of pages13
JournalManagerial and Decision Economics
Volume42
Issue number1
DOIs
StatePublished - Jan 2021

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