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Wage Negotiation Under Good Faith Bargaining

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  • 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)

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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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Bibliographic 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;

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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. Schweinzer, Paul, 2010. "Sequential bargaining with common values," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 109-121, January.

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