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Does bargaining matter in the small firm's matching Mmodel?

  • L'Haridon, Olivier
  • Malherbet, Franck
  • Pérez-Duarte, Sébastien

In this article, the authors use a stylized model of the labor market to investigate the effects of three alternative and well-known bargaining solutions. They apply the Nash, the Egalitarian and the Kalai-Smorodinsky bargaining solutions in the small firm’s matching model of unemployment. To the best of their knowledge, this is the first attempt that has been made to implement and systematically compare these solutions in search matching economies. Their results are twofold. First from the theoretical/methodological viewpoint, they extend a somewhat flexible search matching economy to alternative bargaining solutions. In particular, they prove that the Egalitarian and the Kalai -Smorodinsky solutions are easily implementable and mathematically tractable within search-matching economies. Second, their results show that even though the traditional results of bargaining theory apply in this context, they are generally qualitatively different and quantitatively weaker than expected. This is of particular relevance in comparison with the results established in the earlier literature.

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Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 938.

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Length: 40 pages
Date of creation: 07 Sep 2010
Date of revision:
Handle: RePEc:ebg:heccah:0938
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  1. Etienne LEHMANN & Bruno VAN DER LINDEN, 2002. "On the optimality of search matching equilibrium when workers are risk averse," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  3. Adrian Masters & Melvyn Coles, 2004. "Optimal Unemployment Insurance in a Matching Equilibrium," Discussion Papers 04-12, University at Albany, SUNY, Department of Economics.
  4. Robert E. Hall & Paul R. Milgrom, 2005. "The Limited Influence of Unemployment on the Wage Bargain," NBER Working Papers 11245, National Bureau of Economic Research, Inc.
  5. Fredriksson, Peter & Holmlund, Bertil, 1998. "Optimal Unemployment Insurance in Search Equilibrium," Working Paper Series 1998:2, Uppsala University, Department of Economics.
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  7. Thomson, William, 1994. "Cooperative models of bargaining," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 35, pages 1237-1284 Elsevier.
  8. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, vol. 43(3), pages 513-18, May.
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  12. Christopher Bruce & Jeremy Clark, 2012. "The Impact Of Entitlements And Equity On Cooperative Bargaining: An Experiment," Economic Inquiry, Western Economic Association International, vol. 50(4), pages 867-879, October.
  13. Kenneth Burdett & Randall Wright, 1994. "Two-sided search," Staff Report 169, Federal Reserve Bank of Minneapolis.
  14. Raj Chetty, 2003. "A New Method of Estimating Risk Aversion," NBER Working Papers 9988, National Bureau of Economic Research, Inc.
  15. Guy Laroque & Bernard Salanie, 2004. "Salaire minimum et emploi en présence de négociations salariales," Annals of Economics and Statistics, GENES, issue 73, pages 1-22.
  16. Kalai, Ehud, 1977. "Proportional Solutions to Bargaining Situations: Interpersonal Utility Comparisons," Econometrica, Econometric Society, vol. 45(7), pages 1623-30, October.
  17. Christopher A. Pissarides, 1994. "Search Unemployment with On-the-job Search," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 457-475.
  18. Peter P. Wakker, 2008. "Explaining the characteristics of the power (CRRA) utility family," Health Economics, John Wiley & Sons, Ltd., vol. 17(12), pages 1329-1344.
  19. Marcus Dittrich, 2010. "Minimum Wages and Unemployment Benefits in a Unionized Economy: A Game-Theoretic Approach," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 209-229, November.
  20. Philip Jung & Keith Kuester, 2015. "Optimal Labor-Market Policy in Recessions," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 124-56, April.
  21. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  22. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2003. "Wage bargaining with on-the-job search : theory and evidence," Research Unit Working Papers 0212, Laboratoire d'Economie Appliquee, INRA.
  23. Chun, Youngsub, 1988. "The equal-loss principle for bargaining problems," Economics Letters, Elsevier, vol. 26(2), pages 103-106.
  24. Bonilla Roberto & Burdett Kenneth, 2010. "On-the-Job Search and Labor Market Equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-28, March.
  25. Guillaume Rocheteau & Christopher J. Waller, 2005. "Bargaining and the value of money," Working Paper 0501, Federal Reserve Bank of Cleveland.
  26. Miyagawa, Eiichi, 2002. "Subgame-perfect implementation of bargaining solutions," Games and Economic Behavior, Elsevier, vol. 41(2), pages 292-308, November.
  27. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  28. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
  29. Pieter A. Gautier & Coen N. Teulings & Aico Van Vuuren, 2010. "On-the-Job Search, Mismatch and Efficiency ," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 245-272.
  30. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, March.
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  33. Moulin, H., 1984. "Implementing the Kalai-Smorodinsky bargaining solution," Journal of Economic Theory, Elsevier, vol. 33(1), pages 32-45, June.
  34. Ken Burdett & Melvyn G. Coles, 1997. "Marriage and Class," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 141-168.
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