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Wage Negotiation Under Good Faith Bargaining

Author

Listed:
  • JESSE A. SCHWARTZ

    (Department of Economics, Finance, and Quantitative Analysis, Kennesaw State University, 1000 Chastain Road, Box 0403, Kennesaw, GA 30144, USA)

  • QUAN WEN

    (Department of Economics, Vanderbilt University, VU Station B #351819, 2301 Vanderbilt Place, Nashville, TN 37235-1819, USA)

Abstract

We study the wage negotiation model of Haller and Holden (1990) and Fernandez and Glazer (1991) under the "Good Faith Bargaining" (GFB) rule, where a party may not demand more than it has previously demanded. The GFB rule significantly restricts feasible strategies, but at the same time, makes the game non-stationary and the analysis complicated. We introduce a state-dependent backward induction that generalizes Shaked and Sutton (1984) to characterize the equilibrium payoffs. We find that the GFB rule eliminates the union's credibility to strike. Without the strikes, the union's strategic opportunities during disagreement disappear, so that there is a unique equilibrium. This uniqueness contrasts sharply with the multiple equilibrium outcomes that obtain when no GFB rule is imposed.

Suggested Citation

  • Jesse A. Schwartz & Quan Wen, 2007. "Wage Negotiation Under Good Faith Bargaining," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 9(03), pages 551-564.
    • Handle: RePEc:wsi:igtrxx:v:09:y:2007:i:03:n:s021919890700159x
    DOI: 10.1142/S021919890700159X
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    References listed on IDEAS

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    1. ., 1994. "Game Theory and Institutions," Chapters, in: Geoffrey M. Hodgson & Warren J. Samuels & Marc R. Tool (ed.), The Elgar Companion to Institutional and Evolutionary Economics, volume 0, chapter 51, Edward Elgar Publishing.
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    Cited by:

    1. Driesen, Bram & Perea, Andrés & Peters, Hans, 2012. "Alternating offers bargaining with loss aversion," Mathematical Social Sciences, Elsevier, vol. 64(2), pages 103-118.
    2. Yu, Zhixian, 2020. "Alternating-offer bargaining with endogenous commitment," Economics Letters, Elsevier, vol. 192(C).
    3. Zhongwei Feng & Chunqiao Tan, 2019. "Subgame Perfect Equilibrium in the Rubinstein Bargaining Game with Loss Aversion," Complexity, Hindawi, vol. 2019, pages 1-23, March.
    4. Schweinzer, Paul, 2010. "Sequential bargaining with common values," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 109-121, January.
    5. Fengjiao Chen & Chiu Yu Ko & Duozhe Li, 2018. "On the role of outside options in wage renegotiation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(4), pages 792-803, October.

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    More about this item

    Keywords

    Bargaining; negotiation; good faith bargaining; 91A10; 91A25; 91A50;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C0 - Mathematical and Quantitative Methods - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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