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Implementing endogenous inside options in Nash wage bargaining models

  • Knabe, Andreas

The Rubinstein alternating-offers game shows that the threat point in Nash wage bargaining models should be the inside, instead of the outside, option. We provide a new way to implement inside options by explicitly modeling a utilitarian union's strike payoff. The solution to the dynamic bargaining system resulting from the endogeneity of the inside option can serve as a basis for richer, though still easily applicable, models of wage bargaining that are more in accordance with their game-theoretical underpinnings. The dynamics of the model also provide a theoretical justification for temporarily delayed labor market responses to policy changes.

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Article provided by Elsevier in its journal Mathematical Social Sciences.

Volume (Year): 57 (2009)
Issue (Month): 2 (March)
Pages: 161-176

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Handle: RePEc:eee:matsoc:v:57:y:2009:i:2:p:161-176
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