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Unions and the Coordination Problem in an Integrated Economy


  • Domenico Buccella

    () (University of Siena, Italy; University of Graz, Austria)


This work represents an extension of the model presented by Olivier Blanchard in occasion of the Lionel Robbins' Letures (2000) given M.I.T. It analyzes the transnational cooperative behavior of trade unions in a two symmetric country-model with monopolistic competition firms present in the two markets under the possibility to shift production (i.e. through an increase in investments). In the case of technological shocks, firms are able to capture the advantage in wage differentials between the two countries. The country facing the shock has a loss in employment. If transaction costs are present, unions face a classical Prisoner's Dilemma where the Nash equilibrium of the game is no cooperation, but this result is not Pareto-efficient.

Suggested Citation

  • Domenico Buccella, 2007. "Unions and the Coordination Problem in an Integrated Economy," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 7(1), pages 19-33, July.
  • Handle: RePEc:bic:journl:v:7:y:2007:i:1:p:19-33

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    More about this item


    Technological shocks; international production; integrated economy; trade union cooperation;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects


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