Abstract
This paper analyzes employee stock ownership plans in an implicit contract model under asymmetric information. Our model assumes that worker compensation schemes involve wage and stock payments, or wage-share contracts, and treats shares of stock as an enforceable claim on the firm's realized profits. In this setting, we show conditions under which wage-share contracts lead to first-best outcomes. We also demonstrate that optimal wage-share contracts achieve production-efficient levels of employment in all states of nature, even when a first-best solution is not attainable. A special case of our model implies that employee stock offerings are inversely correlated with profits.
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