Organizational Design and Technology Choice under Intrafirm Bargaining

The authors consider a wide number of applications of an intrafirm bargaining game within organizations where employees and the firm engage in wage negotiations. Under their presumption that contracts cannot bind employees to the organization, the resulting stable wage and profit profiles give rise to an objective function for the firm that places weight on inframarginal profits in an economically significant manner. The authors in turn employ this methodology to explore applications of organizational design, hiring and capital decisions, training and cross-training, the importance of labor and asset specificity, managerial hierarchies, preferences for unionization, responses to competition, and internal capital budgeting. Copyright 1996 by American Economic Association.