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Alternating Offers Union-Firm Bargaining: Order of Play and Efficiency

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  • Elie Appelbaum

    ()
    (York University, Toronto)

Abstract

This paper shows that the Rubinstein alternating offers model can be modified to provide a Pareto superior outcome in the context of the right-to-manage union-firm bargaining. Two examples of bargaining protocols that yield a superior outcome are provided. In the first example, the union and the firm engage in a game in which the order of play is determined as part of the bargaining. We show that the game has a unique subgame perfect equilibrium in which the firm always moves first in the wage bargaining game and the equilibrium wage is, therefore, unique. In the second example we examine a two-part-tariff alternating offers bargaining protocol, where the firm and the union bargain over the wage and transfer payments. We show that this bargaining protocol has a Pareto efficient, unique subgame perfect equilibrium. Thus, although the parties do not bargain over the level of employment, the outcome under this protocol is, nevertheless, “socially” optimal.

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Bibliographic Info

Paper provided by York University, Department of Economics in its series Working Papers with number 2009_02.

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Length: 17 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:yca:wpaper:2009_02

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Keywords: Union Wage premium; Efficient Bargaining; Right to Manage;

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  1. Elie Appelbaum, 2008. "Strategic Extremism: Bargaining with Endogenous Breakdown Probabilities and Order of Play," Working Papers 2008_07, York University, Department of Economics.
  2. Booth, Alison L, 1995. "Layoffs with Payoffs: A Bargaining Model of Union Wage and Severance Pay Determination," Economica, London School of Economics and Political Science, vol. 62(248), pages 551-64, November.
  3. Manfred Königstein & Marie-Claire Villeval, 2005. "The Choice of the Agenda in Labor Negotiations: Efficiency and Behavioral Considerations," Post-Print halshs-00175021, HAL.
  4. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, December.
  5. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  6. Booth,Alison L., 1994. "The Economics of the Trade Union," Cambridge Books, Cambridge University Press, number 9780521464673, December.
  7. Elie Appelbaum, 2008. "Wages, Fringe Benefits and Efficiency in Union-Firm Bargaining," Working Papers 2008_04, York University, Department of Economics.
  8. Oswald, A. J., 1995. "Efficient contracts are on the labour demand curve: Theory and facts," Labour Economics, Elsevier, vol. 2(1), pages 102-102, March.
  9. Oswald, Andrew J & Turnbull, Peter J, 1985. "Pay and Employment Determination in Britain: What Are Labour," Oxford Review of Economic Policy, Oxford University Press, vol. 1(2), pages 80-97, Summer.
  10. Oswald, Andrew J, 1982. "Trade Unions, Wages and Unemployment: What Can Simple Models Tell Us?," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 526-45, November.
  11. Frankel, David M., 1998. "Creative Bargaining," Staff General Research Papers 11927, Iowa State University, Department of Economics.
  12. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  13. Besancenot, Damien & Vranceanu, Radu, 1999. "A trade union model with endogenous militancy: interpreting the French case," Labour Economics, Elsevier, vol. 6(3), pages 355-373, September.
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