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Wage bargaining with discount rates varying in time under different strike decisions

Author

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  • Ahmet Ozkardas

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Agnieszka Rusinowska

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

We present a non-cooperative union-firm wage bargaining model in which the union must choose between strike and holdout if a proposed wage contract is rejected. The innovative element that our model brings to the existing literature on wage bargaining, concerns the parties' preferences which are not expressed by constant discount rates, but by sequences of discount factors varying in time. First, we determine subgame perfect equilibria if the strike decision of the union is exogenous. We analyze the case when the union is committed to strike in each disagreement period, the case when the union is committed to strike only when its own offer is rejected, and the case of the never strike exogenous decision. A comparison of the results is provided, among the cases of the exogenous strike decisions. Next, we consider the general model with no assumption on the commitment to strike. We find subgame perfect equilibria in which the strategies supporting the equilibria in the exogenous cases are combined with the minimum-wage strategies, provided that the firm is not less patient than the union. If the firm is more impatient than the union, then the firm is better off by playing the no-concession strategy. We find a subgame perfect equilibrium for this case.

Suggested Citation

  • Ahmet Ozkardas & Agnieszka Rusinowska, 2014. "Wage bargaining with discount rates varying in time under different strike decisions," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00975533, HAL.
    • Handle: RePEc:hal:cesptp:hal-00975533
    Note: View the original document on HAL open archive server: https://paris1.hal.science/hal-00975533
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. R.J. Aumann & S. Hart (ed.), 2002. "Handbook of Game Theory with Economic Applications," Handbook of Game Theory with Economic Applications, Elsevier, edition 1, volume 3, number 3.
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    4. Ahmet Ozkardas & Agnieszka Rusinowska, 2012. "Wage bargaining with discount rates varying in time under exogenous strike decisions," Documents de travail du Centre d'Economie de la Sorbonne 12013, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    5. Coles, Melvyn G. & Muthoo, Abhinay, 2003. "Bargaining in a non-stationary environment," Journal of Economic Theory, Elsevier, vol. 109(1), pages 70-89, March.
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    Cited by:

    1. Agnieszka Rusinowska & Ahmet Ozkardas, 2015. "On equilibrium payoffs in wage bargaining with discount rates varying in time," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 181-199, October.
    2. Agnieszka Rusinowska & Ahmet Ozkardas, 2015. "Inefficient equilibria in wage bargaining with discount rates varying in time," Economics Bulletin, AccessEcon, vol. 35(3), pages 1744-1751.
    3. Ahmet Ozkardas & Agnieszka Rusinowska, 2014. "Holdout threats of the union during wage bargaining," Documents de travail du Centre d'Economie de la Sorbonne 14072, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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    Keywords

    union; firm bargaining; alternating offers; varying discount rates; subgame perfect equilibrium;
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