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Institutions, Bargaining Power and Labor Shares

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  • Benjamin Bental
  • Dominique Demougin

Abstract

We use a static framework characterized by both moral hazard and holdup problems. In the model the optimal allocation of bargaining power balances these frictions. We examine the impact of improved monitoring on that optimal allocation and its impact upon effort, investment, profits and rents. The model’s predictions are consistent with the recent evolution of labor shares, wages per efficiency units and the ratio of labor in efficiency units to capital in several OECD countries. The model suggests further that improvement in monitoring may also play a key role in understanding opposition to institutional reforms in the labor market.

Suggested Citation

  • Benjamin Bental & Dominique Demougin, 2006. "Institutions, Bargaining Power and Labor Shares," SFB 649 Discussion Papers SFB649DP2006-009, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  • Handle: RePEc:hum:wpaper:sfb649dp2006-009
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Benjamin Bental & Dominique Demougin, 2006. "Incentive Contracts And Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 1033-1055, August.
    3. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13.
    4. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1339-1382.
    5. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
    6. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, January.
    7. Bental, Benjamin & Demougin, Dominique, 2008. "Do factor shares reflect technology?," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1329-1334, September.
    8. Dominique Demougin & Carsten Helm, 2006. "Moral Hazard and Bargaining Power," German Economic Review, Verein für Socialpolitik, vol. 7, pages 463-470, November.
    9. Daron Acemoglu & Pol Antras & Elhanan Helpman, 2005. "Contracts and the Division of Labor," Harvard Institute of Economic Research Working Papers 2074, Harvard - Institute of Economic Research.
    10. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    11. Charles I. Jones, 2003. "Growth, capital shares, and a new perspective on production functions," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    12. Dieter Balkenborg, 2001. "How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk: Comment," American Economic Review, American Economic Association, vol. 91(3), pages 731-738, June.
    13. Francis Green, 2002. "Why Has Work Effort Become More Intense?," Studies in Economics 0207, School of Economics, University of Kent.
    14. Son Ku Kim, 1997. "Limited Liability and Bonus Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 899-913, December.
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    Cited by:

    1. Brada, Josef C., 2013. "The distribution of income between labor and capital is not stable: But why is that so and why does it matter?," Economic Systems, Elsevier, vol. 37(3), pages 333-344.
    2. Erkki Koskela & Ronnie Schöb, 2012. "Tax Progression under Collective Wage Bargaining and Individual Effort Determination," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51(3), pages 749-771, July.
    3. Bental, Benjamin & Demougin, Dominique, 2008. "Do factor shares reflect technology?," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1329-1334, September.
    4. Bruno Deffains & Dominique Demougin, 2006. "Institutional Competition, Political Process and Holdup," SFB 649 Discussion Papers SFB649DP2006-027, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    5. Bruno Deffains & Dominique Demougin, 2006. "Governance: Who Controls Matters," SFB 649 Discussion Papers SFB649DP2006-053, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    6. Deffains, Bruno & Demougin, Dominique, 2008. "Legal competition, political process and irreversible investment decisions," European Journal of Political Economy, Elsevier, vol. 24(3), pages 615-627, September.
    7. Josef C. Brada & El-hadj Bah, 2014. "Growing Income Inequality as a Challenge to 21st Century Capitalism," a/ Working Papers Series 1402, Italian Association for the Study of Economic Asymmetries, Rome (Italy).

    More about this item

    Keywords

    moral hazard; hold up; bargaining; labor share;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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