Question

In: Economics

Many workers hold large amounts of stock issues by the firms in which they work (in...

Many workers hold large amounts of stock issues by the firms in which they work (in accorance with government rules). Why do you belive companies encourage this type of behavior, but cannot do this with intermediate products such as mutual funds? Why might a worker NOT wish to hold the stock in the company that employs them, even though neither the worker nor the company is planning to end the employment relationship? Disscuss this in terms of loanable funds market principles, taxes and productivity.

Solutions

Expert Solution

Companies encourage long termstock options ro ensure employee retention and decrease employee acquisition cost and also keep costs hirng and thus promoting development and grooming.

Companies cannot recommends nutual funds as if lacks symmetrical information and lacks utilities. However workers may wish not to hold assuming prices will crash and thus sellout to market margins and make profits enormously and save taxes.

This can create recessionary impacts and thus slowdown in economic growth as lonable funds decrease due to rise in interest rates.


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