Employee Share Ownership and Privatisation: Some Theoretical Issues

Abstract

The purpose of this paper is to discuss some of the theoretical issues involved with employee share ownership in the privatization situation. The share purchase decision by employ ees is generally a one off decision, and there is a sequential aspect to the problem. The author concludes that simple theoretical models of the type will generally unambiguously predict that employee share ownership is beneficial in privatizations. Indeed the results are som ewhat surprising, showing that the creation of additional shares for employees actually increases rather than decreases the value of non-e mployee shares, even though the money paid for the employee shares go es to the government and does not stay in the company. Copyright 1987 by Royal Economic Society.