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On the Social Desirability of Centralized Wage Setting when Firms are Run by Biased Managers

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  • Meccheri Nicola

    (Department of Economics and Management, University of Pisa, Pisa, Italy, RCEA (Fellow) and GLO (Fellow))

Abstract

This paper compares the welfare outcomes obtained under alternative unionization regimes (decentralized vs. centralized wage setting) in a duopoly market in which shareholders delegate strategic decisions to biased (overconfident or underconfident) managers. In such a framework, the common tenet that consumer surplus and overall welfare are always higher under decentralized wage setting is completely overturned. Indeed, in the presence of centralized unionization (industry-wide union), firm shareholders always prefer to hire more aggressive or less conservative managers and, as a result, output (consumer surplus) and overall welfare are larger than in a decentralized wage setting structure.

Suggested Citation

  • Meccheri Nicola, 2023. "On the Social Desirability of Centralized Wage Setting when Firms are Run by Biased Managers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 23(3), pages 701-725, July.
    • Handle: RePEc:bpj:bejeap:v:23:y:2023:i:3:p:701-725:n:12
    DOI: 10.1515/bejeap-2022-0321
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    Cited by:

    1. Meccheri, Nicola & Vergari, Cecilia, 2024. "Union structure and product quality differentiation," GLO Discussion Paper Series 1377, Global Labor Organization (GLO).

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    More about this item

    Keywords

    unionization structure; strategic delegation; biased managers; social welfare;
    All these keywords.

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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