ON THE INCIDENCE OF PROFIT-SHARING

We examine the impact of industry demand conditions on workers' propen sity to free ride under profit sharing. Allowing the firm to respond t o worker behavior and the market to adjust to worker and firm behavior , we find that workers tend to restrict output by shirking where indus try demand is inelastic, in which case the firm will avoid profit shar ing. Only where demand is elastic will workers have the incentive to a void free riding and the firm the incentive to employ a sharing scheme . The analysis is generally consistent with empirical research and pro vides several novel predictions.