Experimental effects of institutionalizing co-determination by a procedurally fair bidding rule

Federica Alberti, Werner Guth, Kei Tsutsui

Research output: Working paper

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Abstract

We experimentally investigate corporate governance of a co-determined firm. The experimental setup confronts the firm’s manager with three employees as stakeholders. There are two investment opportunities, each of which could affect the stakeholders either positively or negatively. First, the manager states his or her demand of the total value of each investment. Then the three stakeholders, knowing the manager’s demands, state their claims via bidding. The bidding rule is procedurally fair by treating all three stakeholders equally as long as stakeholders truthfully state their own values, but offers underbidding incentives. We find that most stakeholder-participants do underbid. The total bids are not significantly different from the managers’ claims. Contrary to game theoretical prediction, manager-participants demand a fair share of the value rather than almost the entire investment value.
Original languageEnglish
PublisherUniversity of Portsmouth
Number of pages37
Publication statusPublished - 26 May 2020

Publication series

NameWorking Papers in Economics and Finance
PublisherUniversity of Portsmouth

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