Intra-firm Bargaining under Non-binding Contracts
The authors present a new methodology for studying the problem of intrafirm bargaining based on the notion that contracts cannot commit the firm and its agents to wages and employment. They develop and analyze a general noncooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party. Equilibrium firm profits are characterizable as both a weighted average of a neo-classical (nonbargaining) firm's profits and a generalization of Shapley value for a corresponding cooperative game. Furthermore, the resulting payoffs induce economically significant distortions in the firm's input and organizational-design decisions. Copyright 1996 by The Review of Economic Studies Limited.
Volume (Year): 63 (1996)
Issue (Month): 3 (July)
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