We model cooperation between an employer and a workers' union as an equilibrium in an infinitely repeated game with discounting and imperfect monitoring. The employer has private information about firm profitability. The model explains the incidence and duration of strikes, as well as the employer's outsourcing (or partial lock-out) decisions. By means of an effort variable, it also extends the theory to account for worker resistance phenomena, taking the form of low effort on the part of employees. Strikes appear as random equilibrium phenomena, during finite-duration, but recurrent phases of play, triggered by the occurrence of a low-profitability state. We show that high-effort and high-pay cooperative agreements between the union and the employer can be supported as perfect public equilibria of the repeated game, if players are patient enough, but only at the cost of random reversions to noncooperative equilibrium in which strikes, low effort, low pay, and outsourcing take place.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
6644.
Find related papers by JEL classification: C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games D2 - Microeconomics - - Production and Organizations J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
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MacLeod, W Bentley & Malcomson, James M, 1998.
"Motivation and Markets,"
American Economic Review,
American Economic Association, vol. 88(3), pages 388-411, June.
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Lawrence M. Ausubel & Peter Cramton & Raymond J. Deneckere, 2002.
"Bargaining with Incomplete Information,"
Papers of Peter Cramton
02barg, University of Maryland, Department of Economics - Peter Cramton, revised 12 Mar 2001.
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