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Alternating Offers Union-Firm Bargaining: Order of Play and Efficiency

  • Elie Appelbaum

    ()

    (York University, Toronto)

This paper shows that the Rubinstein alternating offers model can be modified to provide a Pareto superior outcome in the context of the right-to-manage union-firm bargaining. Two examples of bargaining protocols that yield a superior outcome are provided. In the first example, the union and the firm engage in a game in which the order of play is determined as part of the bargaining. We show that the game has a unique subgame perfect equilibrium in which the firm always moves first in the wage bargaining game and the equilibrium wage is, therefore, unique. In the second example we examine a two-part-tariff alternating offers bargaining protocol, where the firm and the union bargain over the wage and transfer payments. We show that this bargaining protocol has a Pareto efficient, unique subgame perfect equilibrium. Thus, although the parties do not bargain over the level of employment, the outcome under this protocol is, nevertheless, “socially” optimal.

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Paper provided by York University, Department of Economics in its series Working Papers with number 2009_02.

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Length: 17 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:yca:wpaper:2009_02
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  1. repec:cup:cbooks:9780521464673 is not listed on IDEAS
  2. Oswald, Andrew J & Turnbull, Peter J, 1985. "Pay and Employment Determination in Britain: What Are Labour," Oxford Review of Economic Policy, Oxford University Press, vol. 1(2), pages 80-97, Summer.
  3. Oswald, Andrew J., 1993. "Efficient contracts are on the labour demand curve : Theory and facts," Labour Economics, Elsevier, vol. 1(1), pages 85-113, June.
  4. Elie Appelbaum, 2008. "Wages, Fringe Benefits and Efficiency in Union-Firm Bargaining," Working Papers 2008_04, York University, Department of Economics.
  5. Frankel, David M., 1998. "Creative Bargaining," Staff General Research Papers 11927, Iowa State University, Department of Economics.
  6. Elie Appelbaum, 2008. "Strategic Extremism: Bargaining with Endogenous Breakdown Probabilities and Order of Play," Working Papers 2008_07, York University, Department of Economics.
  7. Marie-Claire Villeval & Manfred Konigstein, 2005. "The Choice of the Agenda in Labor Negotiations: efficiency and behavioral considerations," Working Papers 0508, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  8. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  9. Booth, Alison L, 1995. "Layoffs with Payoffs: A Bargaining Model of Union Wage and Severance Pay Determination," Economica, London School of Economics and Political Science, vol. 62(248), pages 551-64, November.
  10. Besancenot, Damien & Vranceanu, Radu, 1999. "A trade union model with endogenous militancy: interpreting the French case," Labour Economics, Elsevier, vol. 6(3), pages 355-373, September.
  11. repec:cup:cbooks:9780521576475 is not listed on IDEAS
  12. Oswald, Andrew J, 1982. "Trade Unions, Wages and Unemployment: What Can Simple Models Tell Us?," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 526-45, November.
  13. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
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