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Institutions, Bargaining Power and Labor Shares

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  • Benjamin Bental
  • Dominique Demougin

Abstract

We use a static framework characterized by both moral hazard and holdup problems. In the model the optimal allocation of bargaining power balances these frictions. We examine the impact of improved monitoring on that optimal allocation and its impact upon effort, investment, profits and rents. The model’s predictions are consistent with the recent evolution of labor shares, wages per efficiency units and the ratio of labor in efficiency units to capital in several OECD countries. The model suggests further that improvement in monitoring may also play a key role in understanding opposition to institutional reforms in the labor market.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2006-009.

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Length: 26 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2006-009

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Keywords: moral hazard; hold up; bargaining; labor share;

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References

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  1. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(3), pages 514-550, June.
  2. Juan Botero & Simeon Djankov & Rafael Porta & Florencio C. Lopez-De-Silanes, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(4), pages 1339-1382, November.
  3. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  4. Charles I. Jones, 2003. "Growth, capital shares, and a new perspective on production functions," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Nov.
  5. Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(500), pages 1-27, 01.
  7. Dominique Demougin & Carsten Helm, 2006. "Moral Hazard and Bargaining Power," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 7, pages 463-470, November.
  8. Daron Acemoglu & Pol Antràs & Elhanan Helpman, 2005. "Contracts and the Division of Labor," NBER Working Papers 11356, National Bureau of Economic Research, Inc.
  9. Bental, Benjamin & Demougin, Dominique, 2008. "Do factor shares reflect technology?," Journal of Macroeconomics, Elsevier, Elsevier, vol. 30(3), pages 1329-1334, September.
  10. Benjamin Bental & Dominique Demougin, 2006. "Incentive Contracts And Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 1033-1055, 08.
  11. Francis Green, 2002. "Why Has Work Effort Become More Intense?," Studies in Economics, Department of Economics, University of Kent 0207, Department of Economics, University of Kent.
  12. Son Ku Kim, 1997. "Limited Liability and Bonus Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 6(4), pages 899-913, December.
  13. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13.
  14. Dieter Balkenborg, 2001. "How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 731-738, June.
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Cited by:
  1. Erkki Koskela & Ronnie Schöb, 2007. "Tax Progression under Collective Wage Bargaining and Individual Effort Determination," CESifo Working Paper Series 2024, CESifo Group Munich.
  2. Josef C. Brada & El-hadj Bah, 2014. "Growing Income Inequality as a Challenge to 21st Century Capitalism," a/ Working Papers Series, Italian Association for the Study of Economic Asymmetries, Rome (Italy) 1402, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
  3. Bruno Deffains & Dominique Demougin, 2006. "Institutional Competition, Political Process and Holdup," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2006-027, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. Bruno Deffains & Dominique Demougin, 2006. "Governance: Who Controls Matters," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2006-053, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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