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Intra-firm Bargaining under Non-binding Contracts

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  • Lars A. Stole
  • Jeffrey Zwiebel

Abstract

We present a new methodology for studying the problem of intra-firm bargaining, based on the notion that contracts cannot commit the firm and its agents to wages and employment. We develop and analyse a general non-cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party. Equilibrium firm profits are characterizable as both a weighted average of a neo-classical (non-bargaining) firm's profits and a generalization of Shapley value for a corresponding cooperative game. Furthermore, the resulting payoffs induce economically significant distortions in the firm's input and organizational-design decisions.

Suggested Citation

  • Lars A. Stole & Jeffrey Zwiebel, 1996. "Intra-firm Bargaining under Non-binding Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(3), pages 375-410.
    • Handle: RePEc:oup:restud:v:63:y:1996:i:3:p:375-410.
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