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A bargaining model with uncertainty and varying outside opportunities

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  • Adriana Cassoni

    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

Abstract

The main purpose of this paper is to propose an alternative way of explaining – within the bargaining theory framework – the stylised fact of flat wages and employment bearing all the adjustment to shocks. Standard models predict this behaviour under the assumptions of a constant elasticity production function and a reservation wage independent of shocks. Once the latter is removed, however, the result holds no more. The proposed two-stage model, in which the second stage involves negotiations over employment after the state of nature is revealed, would allow to recover it as a consequence of the uncertainty agents face when bargaining over wages in the first stage. The model nests other formulations and allows for Pareto efficient and inefficient outcomes, depending on union power, agents' beliefs and the observed state of nature.

Suggested Citation

  • Adriana Cassoni, 1996. "A bargaining model with uncertainty and varying outside opportunities," Documentos de Trabajo (working papers) 1096, Department of Economics - dECON.
    • Handle: RePEc:ude:wpaper:1096
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    File URL: https://hdl.handle.net/20.500.12008/2301
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    References listed on IDEAS

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    Cited by:

    1. Federico Echenique & Alvaro Forteza, 2000. "Are stabilization programs expansionary?," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 15(1), pages 65-89.
    2. Alvaro Forteza, 1995. "Welfare state dynamics," Documentos de Trabajo (working papers) 0896, Department of Economics - dECON.
    3. Walter García Fontes & Ruben Tansini, 1996. "The effects of trade liberalization on R&D investments: the case of the Uruguayan manufacturing industry," Documentos de Trabajo (working papers) 0396, Department of Economics - dECON.

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    More about this item

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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