Strategic Innovation with Complete and Incomplete Labour Market Contracts
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.
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Volume (Year): 103 (2001)
Issue (Month): 2 (June)
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