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Unionization, Incomplete Contracting, and Capital Investment

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  • Bronars, Stephen G
  • Deere, Donald R

Abstract

This article examines empirically the hypothesis that incomplete contracts and resulting opportunistic behavior over the return to sunk assets reduces investment. Union-firm contracts are incomplete because they (1) do not prevent all actions aimed at changing the existing contract; (2) cover a relatively short time period; and (3) do not extend to union members yet to be hired. The primary response of firms is to reduce investment in specific durable assets and also to reduce employment growth and increase debt. The authors find fairly strong evidence of these effects in a sample of large publicly traded firms using firm-specific measures of unionization. Copyright 1993 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 66 (1993)
Issue (Month): 1 (January)
Pages: 117-32

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Handle: RePEc:ucp:jnlbus:v:66:y:1993:i:1:p:117-32

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Web page: http://www.journals.uchicago.edu/JB/

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Cited by:
  1. Chemla, Gilles, 2005. "Hold-Up, Stakeholders and Takeover Threats," Economics Papers from University Paris Dauphine 123456789/4134, Paris Dauphine University.
  2. Rafael Gomez & Konstantinos Tzioumis, 2006. "What Do Unions Do to Executive Compensation?," CEP Discussion Papers dp0720, Centre for Economic Performance, LSE.
  3. Bester, Helmut & Petrakis, Emmanuel, 2004. "Wages and productivity growth in a dynamic monopoly," International Journal of Industrial Organization, Elsevier, vol. 22(1), pages 83-100, January.
  4. John T. Addison & Thorsten Schank & Claus Schnabel & Joachim Wagner, 2007. "Do Works Councils Inhibit Investment?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 60(2), pages 187-203, January.
  5. Chen, Yan-Shing & Chen, I-Ju, 2013. "The impact of labor unions on investment-cash flow sensitivity," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2408-2418.
  6. Bas, Maria & Carluccio, Juan, 2010. "Wage Bargaining and the Boundaries of the Multinational Firm," CEPR Discussion Papers 7867, C.E.P.R. Discussion Papers.
  7. Benito Arruñada & Manuel González & Alberto Fernández, 2004. "Determinants of organizational form: Transaction costs and institutions in the European trucking industry," Economics Working Papers 767, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Bellmann, Lutz & Gerner, Hans-Dieter & Hübler, Olaf, 2013. "Investment under Company-Level Pacts," IZA Discussion Papers 7195, Institute for the Study of Labor (IZA).
  9. David Metcalf, 2002. "Unions and productivity, financial performance and investment: international evidence," LSE Research Online Documents on Economics 20072, London School of Economics and Political Science, LSE Library.
  10. Card, David & Devicienti, Francesco & Maida, Agata, 2011. "Rent-Sharing, Hold-up, and Wages: Evidence from Matched Panel Data," IZA Discussion Papers 6086, Institute for the Study of Labor (IZA).
  11. Maria Bas & Juan Carluccio, 2009. "Wage bargaining and the boundaries of the multinational firm," LSE Research Online Documents on Economics 28700, London School of Economics and Political Science, LSE Library.
  12. Fang, Tony & Ge, Ying, 2012. "Unions and firm innovation in China: Synergy or strife?," China Economic Review, Elsevier, vol. 23(1), pages 170-180.
  13. Alberto Fernández & Benito Arruñada & Manuel González, 1998. "Quasi-integration in less-than-truckload trucking," Economics Working Papers 292, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2002.
  14. Addison, John T. & Bellmann, Lutz & Kölling, Arnd, 2002. "Unions, Works Councils and Plant Closings in Germany," IZA Discussion Papers 474, Institute for the Study of Labor (IZA).
  15. Gonzalez, Manuel & Arrunada, Benito & Fernandez, Alberto, 1998. "Regulation as a cause of firm fragmentation:the case of the Spanish construction industry," International Review of Law and Economics, Elsevier, vol. 18(4), pages 433-450, December.
  16. Chemla, Gilles, 2005. "Hold-up, stakeholders and takeover threats," Journal of Financial Intermediation, Elsevier, vol. 14(3), pages 376-397, July.

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