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Wages, Length of Relationship and Bargaining Power: An experimental study in a world of complete contracts

  • Dennis A.V. Dittrich


To explain potential sources of wage rigidity this article analyzes a model of reciprocal kindness applied to a repeated ultimatum game with changing and nonzero conflict payoffs. The model is also tested in a laboratory experiment. The results are compatible with the rentsharing approach to wage rigidity. Wages adjust to 'market pressure' but are less flexible when employees demand their wages, i. e. when they are in a relatively strong bargaining position.

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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2004-18.

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Length: 24 pages
Date of creation: Mar 2004
Date of revision:
Handle: RePEc:esi:discus:2004-18
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