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The Nash Bargaining Solution in Labor Market Analysis

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  • Gilbert L. Skillman

    (Department of Economics, Wesleyan University)

Abstract

The non-symmetric Nash bargaining solution is frequently applied in the study of labor market outcomes, but the axiomatic approach in which it is grounded offers little guidance as to the determinants of agents’ threat points and relative bargaining power. This paper modifies the Rubinstein-Wolinsky (1985) sequential matching and bargaining model to study the role of individual bargaining costs, status quo payoffs, and outside options in determining bargaining power weights and threat points in Nash bargaining solution. Key results differentiate the strategic implications of fixed and time discount-based bargaining costs and demonstrate the general validity of the Nash bargaining solution in characterizing steady-state market outcomes in which outside options are endogenously determined. In this scenario, agents’ relative bargaining weights depend on their matching probabilities.

Suggested Citation

  • Gilbert L. Skillman, 2020. "The Nash Bargaining Solution in Labor Market Analysis," Wesleyan Economics Working Papers 2020-005, Wesleyan University, Department of Economics.
  • Handle: RePEc:wes:weswpa:2020-005
    as

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    File URL: http://repec.wesleyan.edu/pdf/gskillman/2020005_skillman.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Nash bargaining solution; strategic bargaining; outside options; status quo payoffs; labor markets; matching and bargaining;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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