A bargaining theory of the firm (Q372367)

The authors consider the problem of bargaining among owners of a firm with respect to choice of the firm's production plan and a scheme of transfers before the uncertainty about the future state of nature is resolved. The firm acts under uncertainties in incomplete markets during two periods: `today' and `tomorrow'. The initial state of the world is known, and tomorrow any state from the finite set of possible states may be realized. There is one consumption good, and each owner has initial endowments, which can be used to finance the provision of inputs. Today's consumption can be transferred across owners and assets can be used to shift consumption across states. The owners of the firm play a many-round noncooperative bargaining game. A notion of `bargaining equilibrium' is introduced, which corresponds to a weighted Nash bargaining solution. Conditions of the equilibrium uniqueness are obtained. In the case of completeness the equilibrium production plan corresponds to the classical profit-maximizing plan, however, contrary to the classical firm's theory, owners can use transfers to redistribute the profit.