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Debt and Wage Negotiations: A Bankruptcy-Based Approach


  • Dalmazzo, Alberto


The role of debt in wage negotiations is considered in a framework where both the entrepreneur and the workforce are indispensable in production. When workers and the entrepreneur fail to reach an agreement, the firm eventually defaults. Bankruptcy is represented as a three-party bargaining game among the entrepreneur, workers, and lenders. The author shows that debt financing, by reducing workers' bargaining power, increases the firm's share of surplus and improves the incentives to invest. Further, his model allows for overborrowing (the firm borrows more than required by its productive activity) as well as underinvestment due to wealth constraints. Copyright 1996 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Dalmazzo, Alberto, 1996. " Debt and Wage Negotiations: A Bankruptcy-Based Approach," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(3), pages 351-364.
  • Handle: RePEc:bla:scandj:v:98:y:1996:i:3:p:351-64

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    References listed on IDEAS

    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    2. Ozkan, F Gulcin, 1998. "Partisan Business and Budget Cycles with Separate Fiscal and Monetary Authorities," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(2), pages 178-195, March.
    3. Sachs, Jeffrey & Alesina, Alberto, 1988. "Political Parties and the Business Cycle in the United States, 1948-1984," Scholarly Articles 4553026, Harvard University Department of Economics.
    4. Ohlsson, Henry & Vredin, Anders, 1996. " Political Cycles and Cyclical Policies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 203-218, June.
    5. repec:cup:apsrev:v:71:y:1977:i:04:p:1467-1487_26 is not listed on IDEAS
    6. Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters,in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc.
    7. Douglas A. Hibbs, 1994. "The Partisan Model Of Macroeconomic Cycles: More Theory And Evidence For The United States," Economics and Politics, Wiley Blackwell, vol. 6(1), pages 1-23, March.
    8. Beetsma, Roel M. W. J. & Bovenberg, A. Lans, 1997. "Central bank independence and public debt policy," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 873-894, May.
    9. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
    10. Alberto Alesina, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 651-678.
    11. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-630, October.
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    Cited by:

    1. Erkki Koskela & Rune Stenbacka, 2002. "Equilibrium Unemployment and Credit Market Imperfections: The Critical Role of Labour Mobility," CESifo Working Paper Series 654, CESifo Group Munich.
    2. Erkki Koskela & Rune Stenbacka, 2001. "Equilibrium Unemployment with Credit and Labour Market Imperfections," CESifo Working Paper Series 419, CESifo Group Munich.
    3. Sunnevag, Kjell J., 2002. "Auctions combined with ex post taxation--expected revenue when three parties want a piece of the cake," Resources Policy, Elsevier, vol. 28(1-2), pages 49-59.
    4. Koskela, Erkki & Stenbacka, Rune, 2004. "Profit Sharing, Credit Market Imperfections and Equilibrium Unemployment," IZA Discussion Papers 1020, Institute for the Study of Labor (IZA).

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