THE SHUT-DOWN OPTION AND PROFIT-SHARING

Aoki's profit-sharing firm organization is associated with the option evaluation model of investment. The firm is endowed with a shut-down o ption it can exercise when the market price, assumed to be uncertain, falls below a certain trigger level, The distributive parameter is the result of a bargaining process and is influenced by the shut-down opt ion. Workers can delay the firm's shut down by sharing not only profit s but also losses. In that case, the workers' policy changes both the optimal distributive parameter and the trigger price in a nontrivial w ay. The overall result implies an increase in the profit share going t o shareholders as compared to Aoki's original finding. (C) 1995 Academ ic Press, Inc.