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The Nash bargaining solution in labor market analysis

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  • Gilbert L. Skillman

Abstract

Two alternative strategic foundations have been identified for applications of the Nash bargaining solution in economic modelling. However, neither interpretation is consistent with treating “threat point” or disagreement payoffs as individual outside options, a salient feature of bargaining relationships in most labor market settings. This paper uses a matching and strategic bargaining model to examine the determination of bargaining power weights and threat points in the asymmetric Nash bargaining solution. The key result establishes a strategic foundation for applying this solution to market settings with endogenously determined outside options, and shows that bargaining weights depend on outside market conditions only when the matching prospects of one side of the market or the other are relatively high.

Suggested Citation

  • Gilbert L. Skillman, 2022. "The Nash bargaining solution in labor market analysis," Metroeconomica, Wiley Blackwell, vol. 73(3), pages 884-899, July.
    • Handle: RePEc:bla:metroe:v:73:y:2022:i:3:p:884-899
    DOI: 10.1111/meca.12385
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    More about this item

    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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