Optimal Employee Ownership Contracts Under Ambiguity Aversion - CLEO Skip to main content

Summary

The aim of this paper is to compute and describe the conditions of an optimal employee ownership contract between an employer and an ambiguity‐averse employee. We then introduce ambiguity aversion in the baseline model of Aubert et al. (2014) using the multiple prior preferences of Gilboa and Schmeidler (1989) and its extension proposed by Maccheroni et al. (2006). This model offers solutions that reconcile labor and financial economics and behavioral economics research findings on employee ownership. The paper focuses on the most common situation where employee ownership has a positive impact on corporate performance, but can also be used as an entrenchment mechanism. We determine the optimal company stock contribution, which corresponds to a perfect sub-game Nash equilibrium in the ambiguity framework. Using the framework of Gilboa and Schmeidler (1989), we show that the optimal ownership contract is increasing with respect to the