Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/75575
Authors: 
Koskela, Erkki
Stenbacka, Rune
Year of Publication: 
2000
Series/Report no.: 
CESifo Working Paper 314
Abstract: 
We analyze the impact of entrepreneurship as an outside option on compensation contracts between a principal and an agent with bargaining power. In the first stage the parties bargain over the base wage and the profit share. In the second stage the principal determines the capital investment and the agent decides on effort. It is shown that while negotiated base wage increases in the degree of the competitiveness in the market for outside equity funding, the profit share is invariant both to the imperfections prevailing in the equity market and to the relative bargaining power of the negotiating parties.
Subjects: 
Wage bargaining
outside option
entrepreneurship
Document Type: 
Working Paper

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