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Wage Negotiation Under Good Faith Bargaining

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Author Info
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.

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Publisher Info
Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Game Theory Review.

Volume (Year): 09 (2007)
Issue (Month): 03 ()
Pages: 551-564
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Handle: RePEc:wsi:igtrxx:v:09:y:2007:i:03:p:551-564

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Related research
Keywords: Bargaining; negotiation; good faith bargaining; 91A10; 91A25; 91A50;

Find related papers by JEL classification:
B4 - Schools of Economic Thought and Methodology - - Economic Methodology
C0 - Mathematical and Quantitative Methods - - General
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming
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 - - Business Economics

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