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Striking for a Bargain Between Two Completely Informed Agents

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  • Raquel Fernandez
  • Jacob Glazer

Abstract

This paper models the wage-contract negotiation procedure between a union and a firm as a sequential bargaining process in which the union also decides, in each period, whether or not to strike for the duration of that period. We show that there exist subgame-perfect equilibria in which the union engages in several periods of strikes prior to reaching a final agreement, although both parties are completely rational and fully informed. This has implications for other inefficient phenomena such as tariff wars, debt negotiations, and wars in general. We characterize the set of equilibria, show that strikes can occur in real time, and discuss extensions of the model such as lockouts and the possibility of multiple recontracting opportunities.

Suggested Citation

  • Raquel Fernandez & Jacob Glazer, 1989. "Striking for a Bargain Between Two Completely Informed Agents," NBER Working Papers 3108, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3108
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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. Holden, S., 1989. "Non-Cooperative Wage Bargaining," Papers 349, London School of Economics - Centre for Labour Economics.
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    13. Kennan, John, 1987. "The economics of strikes," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.),Handbook of Labor Economics, edition 1, volume 2, chapter 19, pages 1091-1137, Elsevier.
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