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Labor Conflicts and Inefficiency of Relationship-Specific Investments: What is the Judge's Role?

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  • Bruno Deffains
  • Yannick Gabuthy
  • Eve-Angéline Lambert

Abstract

This paper presents a model of litigation in the context of a labor contract. The main objective of our analysis is to determine whether and under which conditions it is efficient that the judiciary arbiters a labor conflict and how the judge's decision should be made in order to be optimal. We embed this idea by considering a relationship between an employer and his worker, in which they can make (non contractible) relationship-specific investments. The optimality here refers to the best investment incentives of the parties allowing to maximize the generated surplus. We derive conclusions about the judge's behavior giving right investment incentives and determine how the division of the surplus should vary depending on several economic and social parameters.

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Bibliographic Info

Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2007-04.

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Date of creation: 2007
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Handle: RePEc:ulp:sbbeta:2007-04

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Keywords: Labor Law; Litigation; Investment Incentives; Bargaining.;

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References

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  1. Juan Botero & Simeon Djankov & Rafael LaPorta & Florencio López-de-Silanes & Andrei Shleifer, . "The Regulation of Labor," Working Paper 19483, Harvard University OpenScholar.
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  3. Belot, Michèle & Boone, Jan & van Ours, Jan C, 2002. "Welfare Effects of Employment Protection," CEPR Discussion Papers 3396, C.E.P.R. Discussion Papers.
  4. Ricardo Caballero & Kevin N. Cowan & Eduardo M. R. A. Engel & Alejandro Micco, 2004. "Effective labor regulation and microeconomic flexibility," Working Papers 04-6, Federal Reserve Bank of Boston.
  5. MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-37, September.
  6. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003. "Are judges biased by labor market conditions?," European Economic Review, Elsevier, vol. 47(5), pages 913-944, October.
  7. Etienne Wasmer, 2006. "General versus Specific Skills in Labor Markets with Search Frictions and Firing Costs," American Economic Review, American Economic Association, vol. 96(3), pages 811-831, June.
  8. John T. Addison & Paulino Teixeira, 2003. "The Economics of Employment Protection," Journal of Labor Research, Transaction Publishers, vol. 24(1), pages 85-129, January.
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  13. Kennan, J. & Wilson, R., 1991. "Bargaining with Private Information," Working Papers 90-01rev, University of Iowa, Department of Economics.
  14. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, October.
  15. Miguel �. Malo, 2000. "A Simple Model of Severance Pay Determination: The Case of Individual Dismissals in Spain," LABOUR, CEIS, vol. 14(2), pages 269-290, 06.
  16. Hardman Moore, John & Hart, Oliver, 1985. "Incomplete Contracts and Renegotiation," CEPR Discussion Papers 60, C.E.P.R. Discussion Papers.
  17. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  18. Bruno Deffains & Dominique Demougi, 2006. "Institutional Competition, Political Process and Holdup," Working Papers of BETA 2006-13, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  19. Cooter, Robert D & Rubinfeld, Daniel L, 1989. "Economic Analysis of Legal Disputes and Their Resolution," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1067-97, September.
  20. Froeb, Luke M. & Kobayashi, Bruce H., 2001. "Evidence production in adversarial vs. inquisitorial regimes," Economics Letters, Elsevier, vol. 70(2), pages 267-272, February.
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Cited by:
  1. Goerke, Laszlo & Pannenberg, Markus, 2009. "The effects of income taxation on severance pay," Labour Economics, Elsevier, vol. 16(1), pages 107-118, January.

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