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Union-firm bargaining: Order of play and efficiency

  • Appelbaum, Elie

This paper shows that a modified alternating offers Rubinstein model can provide a Pareto superior outcome in the context of the right-to-manage union-firm bargaining. Two examples of bargaining protocols that yield a superior outcome are provided. In the first example, the parties engage in a game in which the order of play is determined as part of the bargaining. We show that the game has a unique subgame perfect equilibrium in which the firm always moves first in the wage bargaining game. The equilibrium wage is, therefore, unique. In the second example, we examine a two-part-tariff alternating offers bargaining protocol, where the parties bargain over the wage and transfer payments. We show that this bargaining protocol has a Pareto efficient, unique subgame perfect equilibrium. Thus, although the parties do not bargain over the level of employment, the outcome under this protocol is, nevertheless, socially optimal.

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 71 (2011)
Issue (Month): 2 (March)
Pages: 235-245

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Handle: RePEc:eee:gamebe:v:71:y:2011:i:2:p:235-245
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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  1. Oswald, A. J., 1995. "Efficient contracts are on the labour demand curve: Theory and facts," Labour Economics, Elsevier, vol. 2(1), pages 102-102, March.
  2. Booth, Alison L, 1993. "Layoffs with Payoffs: A Bargaining Model of Union Wage and Severance Pay Determination," CEPR Discussion Papers 843, C.E.P.R. Discussion Papers.
  3. Königstein, Manfred & Villeval, Marie Claire, 2005. "The Choice of the Agenda in Labor Negotiations: Efficiency and Behavioral Considerations," IZA Discussion Papers 1762, Institute for the Study of Labor (IZA).
  4. Frankel, David M., 1998. "Creative Bargaining," Staff General Research Papers 11927, Iowa State University, Department of Economics.
  5. Besancenot, Damien & Vranceanu, Radu, 1999. "A trade union model with endogenous militancy: interpreting the French case," Labour Economics, Elsevier, vol. 6(3), pages 355-373, September.
  6. repec:cup:cbooks:9780521464673 is not listed on IDEAS
  7. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  8. Oswald, Andrew J, 1982. "Trade Unions, Wages and Unemployment: What Can Simple Models Tell Us?," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 526-45, November.
  9. Bean, Charles R, 1984. "Optimal Wage Bargains," Economica, London School of Economics and Political Science, vol. 51(202), pages 141-49, May.
  10. repec:cup:cbooks:9780521576475 is not listed on IDEAS
  11. Rupayan Pal, 2005. "Choice of union-firm bargaining agenda and social welfare," Public Economics 0507014, EconWPA.
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