Jeffrey Zwiebel

Corporate Conservatism and Relative Compensation

This paper demonstrates that in a simple setting with managerial concern for reputation and asymmetric information on ability, most managers may refrain from undertaking innovations that stochastically dominate an industry standard. Common components of uncertainty lead to market inferences of managerial ability based on relative performance. Managers who undertake the industry standard are consequently evaluated with a more accurate benchmark than those innovating. Discontinuities in compensation when performance is low (because of firings) lead managers to have differing valuations of an accurate benchmark, depending on type. In particular, very high and very low ability managers are more likely to undertake superior innovations than those of average ability.

Intra-firm Bargaining under Non-binding Contracts

We present a new methodology for studying the problem of intra-firm bargaining, based on the notion that contracts cannot commit the firm and its agents to wages and employment. We develop and analyse a general non-cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party. Equilibrium firm profits are characterizable as both a weighted average of a neo-classical (non-bargaining) firms profits and a generalization of Shapley value for a corresponding cooperative game. Furthermore, the resulting payoffs induce economically significant distortions in the firms input and organizational-design decisions.

Organizational Design and Technology Choice under Intrafirm Bargaining: Comment

The authors consider a wide number of applications of an intrafirm bargaining game within organizations where employees and the firm engage in wage negotiations. Under their presumption that contracts cannot bind employees to the organization, the resulting stable wage and profit profiles give rise to an objective function for the firm that places weight on inframarginal profits in an economically significant manner. The authors in turn employ this methodology to explore applications of organizational design, hiring and capital decisions, training and cross-training, the importance of labor and asset specificity, managerial hierarchies, preferences for unionization, responses to competition, and internal capital budgeting. Copyright 1996 by American Economic Association.

Mergers, Employee Hold-Up and the Scope of the Firm: An Intrafirm Bargaining Approach to Mergers

We explore the scope of the firm in a setting where employee wage contracts are nonbinding and firms cannot contract with one another on their respective employment decisions. Specifically, we consider two divisions that have scope for beneficial interaction, and examine whether it is best for them, given this incomplete contracting environment, to produce jointly within the same firm or to interact over the market. Employing a multilateral bargaining framework, we analyze how employee wages, firm profits and employment levels are altered by merger when employees have some hold-up power. Among other results, our analysis suggests that merged production is more likely when the optimal contributions by the two firms to joint production are more unequal (leading to productive and bargaining externalities), while nonintegration is more likely the greater the productive gains to joint interaction between the firms (despite such gains being equally realizable under both merger and nonintegration).