This paper investigates the effects of cooperation (corporatism) on macroeconomic performance by considering a rather standard policy game between the government and a monopoly union. We stress the shortcomings of the traditional way used to model cooperation in policy games (the maximization of the weighted sum of players’ preferences), which only approximates the Nash product solution. We find that it is difficult to implement corporatism, although it generally increases social welfare, since it often reduces the union’s utility. In particular, we show that an inflation-neutral union will never find it profitable to cooperate with the government, unless side-payments are considered. The study of this issue is however beyond the scope of this paper.
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Paper provided by EconWPA in its series Macroeconomics with number
0504037.
Find related papers by JEL classification: E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
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Acocella, Nicola & Di Bartolomeo, Giovanni, 2007.
"The Cost of Social Pacts,"
MPRA Paper
3585, University Library of Munich, Germany.
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