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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. 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.
    2. Richard SIMPER & Thomas WEYMAN-JONES, 2008. "Evaluating Gains From Mergers In A Non-Parametric Public Good Model Of Police Services," Annals of Public and Cooperative Economics, Wiley Blackwell, pages 3-33.
    3. Arijit Mukherjee & Enrico Pennings, 2005. "Unionization Structure, Licensing and Innovation," Tinbergen Institute Discussion Papers 05-109/4, Tinbergen Institute.
    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. 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.
    6. Braun, Sebastian, 2009. "Unionisation structures and heterogeneous firms," Kiel Working Papers 1566, Kiel Institute for the World Economy (IfW).
    7. 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.
    8. 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.
    9. Mukherjee, Arijit & Pennings, Enrico, 2011. "Unionization structure, licensing and innovation," International Journal of Industrial Organization, Elsevier, pages 232-241.
    10. Murphy, Gavin & Siedschlag, Iulia & McQuinn, John, 2012. "Employment Protection and Innovation Intensity," Papers WP445, Economic and Social Research Institute (ESRI).
    11. Jacob Seifert, 2015. "Welfare effects of compulsory licensing," Journal of Regulatory Economics, Springer, pages 317-350.
    12. Lingens, Jorg, 2007. "Unions, wage setting, and economic growth," Economic Modelling, Elsevier, vol. 24(1), pages 167-188, January.

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