  EBIs/ESOs substantially change the traditional production/service function
because ESOs/EBIs can have different psychological effects(motivation or
de-motivation), and can create intangible capital and different economic
payoffs. Although Game Theory is flawed, it can be helpful in describing
interactions in ESO/EBIs transactions. ESOs/EBIs involve two-stage games and
there are no perfect Nash Equilibria for the two sub-games. The large number of
actual and potential participants in these games significantly complicates
resolution of equilibria and increases the dynamism of the games given that
players are more sensitive to other peoples moves in such games. This article:
a) analyzes how ESOs/EBIs affect traditional assumptions of production
functions (in both the manufacturing and service sectors), b) analyzes
ESOs/EBIs transactions using game theory concepts, c) illustrates some of the
limitations of game theory.
