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Individual versus collective bargaining under relative income concerns

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  • Demougin, Dominique
  • Upton, Harvey

Abstract

We compare individual and collective bargaining when workers have relative income concerns and employment relationships are characterized by moral hazard. We show that collective bargaining internalizes externality effects that arise from other-regarding preferences. This improves firms’ abilities to create effort incentives and can therefore reduce inefficiencies associated with asymmetric information. We show that if relative income concerns are not too strong, both firms and workers strictly prefer collective bargaining.

Suggested Citation

  • Demougin, Dominique & Upton, Harvey, 2023. "Individual versus collective bargaining under relative income concerns," Economics Letters, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:ecolet:v:233:y:2023:i:c:s0165176523004056
    DOI: 10.1016/j.econlet.2023.111380
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    References listed on IDEAS

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    1. Hideshi Itoh, 2004. "Moral Hazard and Other‐Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45, March.
    2. Bartling, Björn & von Siemens, Ferdinand A., 2010. "The intensity of incentives in firms and markets: Moral hazard with envious agents," Labour Economics, Elsevier, vol. 17(3), pages 598-607, June.
    3. Demougin, Dominique & Upton, Harvey, 2023. "Relative income concerns and the Easterlin Paradox: A theoretical framework," Economic Modelling, Elsevier, vol. 127(C).
    4. Bental, Benjamin & Kragl, Jenny, 2021. "Inequality and incentives with societal other-regarding preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 1298-1324.
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    More about this item

    Keywords

    Relative income concerns; Moral hazard; Bargaining;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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