- Rhineland exit?
- International Tax and Public Finance
- Volume | Issue number
- 16 | 5
- Pages (from-to)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
We argue in favor of the shareholder model of the firm because assigning the full surplus of the firm to shareholders provides the best possible social insurance by diversifying firm-specific risks on capital markets. Coordination in wage bargaining and collective norms on what is proper compensation play an important role in reducing the claim of workers on the firm’s surplus. In Denmark, workers bear less firm-specific risk than workers in the United States do. Collective action thus has an important role to play. Politicians, however, face the temptation to please voters and incumbent workers with short-run gains at the expense of exposing workers to firm-specific risks and reducing future job creation.
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