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Strikes as the 'Tip of the Iceberg' in a Theory of Firm-Union Cooperation

  • Gary-Bobo, Robert J.
  • Jaaidane, Touria

We model cooperation between an employer and a workers' union as an equilibrium in an infinitely repeated game with discounting and imperfect monitoring. The employer has private information about firm profitability. The model explains the incidence and duration of strikes, as well as the employer's outsourcing (or partial lock-out) decisions. By means of an effort variable, it also extends the theory to account for worker resistance phenomena, taking the form of low effort on the part of employees. Strikes appear as random equilibrium phenomena, during finite-duration, but recurrent phases of play, triggered by the occurrence of a low-profitability state. We show that high-effort and high-pay cooperative agreements between the union and the employer can be supported as perfect public equilibria of the repeated game, if players are patient enough, but only at the cost of random reversions to noncooperative equilibrium in which strikes, low effort, low pay, and outsourcing take place.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6644.

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Date of creation: Jan 2008
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Handle: RePEc:cpr:ceprdp:6644
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  1. Susan Athey & Kyle Bagwell, 1999. "Optimal Collusion with Private Information," Working papers 99-17, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Card, David, 1990. "Strikes and Bargaining: A Survey of the Recent Empirical Literature," American Economic Review, American Economic Association, vol. 80(2), pages 410-15, May.
  3. Cramton, Peter C & Tracy, Joseph S, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," American Economic Review, American Economic Association, vol. 82(1), pages 100-121, March.
  4. Fudenberg, D. & Levine, D.K. & Maskin, E., 1989. "The Folk Theorem With Inperfect Public Information," Working papers 523, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. MacLeod, W.B. & Malcomson, J.M., 1997. "Motivation and markets," Discussion Paper Series In Economics And Econometrics 9720, Economics Division, School of Social Sciences, University of Southampton.
  6. MALCOMSON, James M. & SPINNEWYN, Frans, . "The multiperiod principal-agent problem," CORE Discussion Papers RP -803, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Kennan, John & Wilson, Robert, 1989. "Strategic Bargaining Models and Interpretation of Strike Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S87-130, Supplemen.
  8. Hayes, Beth, 1984. "Unions and Strikes with Asymmetric Information," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 57-83, January.
  9. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  10. Card, David, 1990. "Strikes and Wages: A Test of an Asymmetric Information Model," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 625-59, August.
  11. W. Bentley MacLeod & James M. Malcomson, 1986. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Working Papers 585, Queen's University, Department of Economics.
  12. Ausubel, Lawrence M. & Cramton, Peter & Deneckere, Raymond J., 2002. "Bargaining with incomplete information," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 50, pages 1897-1945 Elsevier.
  13. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
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