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Bilateral Delegation, Wage Bargaining and Managerial Incentives: Implications for Efficiency and Distribution

Author

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  • Ishita Chatterjee

    (University of Western Australia)

  • Bibhas Saha

    (School of Economics, University of East Anglia)

Abstract

We develop a model of bilateral delegation in wage and employment bargaining to study efficiency and distributional implications in monopoly and in Cournot duopoly. In both markets delegation causes underproduction, but has contrasting implications for bargaining pie and for its distribution. In monopoly the bargaining pie contracts. In duopoly the bargaining pie expands, sometimes even up to the collusive level suggesting that delegation is conducive to implicit collusion. Surprisingly, a party's payoff can be inversely related to its bargaining power. The well-known duopoly result of overproduction occurs only in unilateral delegations and when the delegating party is sufficiently strong.

Suggested Citation

  • Ishita Chatterjee & Bibhas Saha, 2011. "Bilateral Delegation, Wage Bargaining and Managerial Incentives: Implications for Efficiency and Distribution," University of East Anglia Applied and Financial Economics Working Paper Series 028, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:aepppr:2011_28
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    File URL: https://ueaeco.github.io/working-papers/papers/afe/UEA-AFE-028.pdf
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    References listed on IDEAS

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    Cited by:

    1. Nicola Meccheri & Luciano Fanti, 2012. "Managerial Delegation Schemes in a Duopoly with Endogenous Production Costs: A Comparison of Sales and Relative Profit Delegation under Centralised Unionisation," Working Paper series 44_12, Rimini Centre for Economic Analysis.
    2. Nicola Meccheri & Luciano Fanti, 2016. "Should delegation contracts be made before or after union wage setting? Endogenous moves in a managerial-unionized duopoly," Working Paper series 16-18, Rimini Centre for Economic Analysis.
    3. Luciano Fanti & Nicola Meccheri, 2016. "Endogenous timing of managerial contracts in unionised oligopolies," Working Paper series 16-19, Rimini Centre for Economic Analysis.
    4. Luciano Fanti & Nicola Meccheri, 2015. "On the Cournot–Bertrand Profit Differential and the Structure of Unionisation in a Managerial Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 266-287, December.

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    More about this item

    Keywords

    Managerial incentives; efficient bargaining; bilateral delegation; implicit collusion;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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