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Strategic Innovation with Complete and Incomplete Labour Market Contracts

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  • Ulph, Alistair
  • Ulph, David

Abstract

In a model of strategic R&D competition between two firms that negotiate with independent unions we show that: (i) incomplete labour market contracts may Pareto-dominate complete labour market contracts (ii) even when complete contracts Pareto-dominate incomplete contracts, economies can get stuck in the incomplete contract equilibrium. These conclusions provide additional strategic reasons why complete labour market contracts may not be used--even if they were feasible. We propose two testable predictions to discriminate between complete and incomplete contracts: (i) the variance of wages is lower with complete contracts; (ii) the variance of employment is higher under complete contracts. Copyright 2001 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Ulph, Alistair & Ulph, David, 2001. " Strategic Innovation with Complete and Incomplete Labour Market Contracts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(2), pages 265-282, June.
  • Handle: RePEc:bla:scandj:v:103:y:2001:i:2:p:265-82
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    Cited by:

    1. repec:bla:indres:v:56:y:2017:i:1:p:73-121 is not listed on IDEAS
    2. Ben Ferrett & Vasileios Zikos, 2013. "Wage-Setting Institutions and R&D Collaboration Networks," Australian Economic Papers, Wiley Blackwell, vol. 52(2), pages 61-78, June.
    3. Debasmita Basak & Andreas Hoefele & Arijit Mukherjee, 2014. "Union Bargaining Power and Product Innovation: Relevance of the Preference Function," CESifo Working Paper Series 5007, CESifo Group Munich.
    4. Addison, John T. & Teixeira, Paulino & Evers, Katalin & Bellmann, Lutz, 2013. "Collective Bargaining and Innovation in Germany: Cooperative Industrial Relations?," IZA Discussion Papers 7871, Institute for the Study of Labor (IZA).
    5. Braun, Sebastian, 2009. "Unionisation structures and heterogeneous firms," Kiel Working Papers 1566, Kiel Institute for the World Economy (IfW).
    6. Braun, Sebastian, 2011. "Unionisation structures, productivity and firm performance: New insights from a heterogeneous firm model," Labour Economics, Elsevier, vol. 18(1), pages 120-129, January.
    7. repec:eee:reveco:v:55:y:2018:i:c:p:98-110 is not listed on IDEAS
    8. Mukherjee, Arijit & Pennings, Enrico, 2011. "Unionization structure, licensing and innovation," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 232-241, March.
    9. May, Frank Christian & Münster, Johannes, 2013. "Centralized Bargaining in Press Wholesale," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79984, Verein für Socialpolitik / German Economic Association.
    10. Jacob Seifert, 2015. "Welfare effects of compulsory licensing," Journal of Regulatory Economics, Springer, vol. 48(3), pages 317-350, December.
    11. Vasileios Zikos, 2007. "The Temporal Dimension of Wage Contracts in Oligopoly with Spillovers," Discussion Paper Series 2007_04, Department of Economics, Loughborough University, revised Feb 2007.
    12. Bester, Helmut & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2012. "Wage bargaining, productivity growth and long-run industry structure," Labour Economics, Elsevier, vol. 19(6), pages 923-930.
    13. Murphy, Gavin & Siedschlag, Iulia & McQuinn, John, 2012. "Employment Protection and Innovation Intensity," Papers WP445, Economic and Social Research Institute (ESRI).
    14. Lingens, Jorg, 2007. "Unions, wage setting, and economic growth," Economic Modelling, Elsevier, vol. 24(1), pages 167-188, January.

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