IDEAS home Printed from https://ideas.repec.org/a/eee/labeco/v21y2013icp42-58.html
   My bibliography  Save this article

Does bargaining matter in the small firms matching model?

Author

Listed:
  • l'Haridon, Olivier
  • Malherbet, Franck
  • Pérez-Duarte, Sébastien

Abstract

In this article, we use a stylized model of the labor market to investigate the effects of three alternative and well-known bargaining solutions. We apply the Nash, the Egalitarian and the Kalai–Smorodinsky bargaining solutions in the small firm's matching model of unemployment. First, we show that the Egalitarian and the Kalai–Smorodinsky solutions are easily implementable within search-matching economies. Second, our results show that even though the traditional results of bargaining theory apply in the context of search-matching economies, they are quantitatively weaker than expected compared to the results established in the earlier literature. In addition, and excluding a model with on-the-job search, it appears that the policy implications of labor taxes and employment protection are not very sensitive to the choice of the bargaining solution.

Suggested Citation

  • l'Haridon, Olivier & Malherbet, Franck & Pérez-Duarte, Sébastien, 2013. "Does bargaining matter in the small firms matching model?," Labour Economics, Elsevier, vol. 21(C), pages 42-58.
    • Handle: RePEc:eee:labeco:v:21:y:2013:i:c:p:42-58
    DOI: 10.1016/j.labeco.2012.12.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927537112001261
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.labeco.2012.12.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fredriksson, Peter & Holmlund, Bertil, 2001. "Optimal Unemployment Insurance in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 370-399, April.
    2. Philip Jung & Keith Kuester, 2015. "Optimal Labor-Market Policy in Recessions," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 124-156, April.
    3. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage Bargaining with On-the-Job Search: Theory and Evidence," Econometrica, Econometric Society, vol. 74(2), pages 323-364, March.
    4. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    5. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    6. Christopher A. Pissarides, 1994. "Search Unemployment with On-the-job Search," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(3), pages 457-475.
    7. Melvyn Coles & Adrian Masters, 2006. "Optimal Unemployment Insurance in a Matching Equilibrium," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 109-138, January.
    8. Kalai, Ehud, 1977. "Proportional Solutions to Bargaining Situations: Interpersonal Utility Comparisons," Econometrica, Econometric Society, vol. 45(7), pages 1623-1630, October.
    9. Raj Chetty, 2006. "A New Method of Estimating Risk Aversion," American Economic Review, American Economic Association, vol. 96(5), pages 1821-1834, December.
    10. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
    11. Peter P. Wakker, 2008. "Explaining the characteristics of the power (CRRA) utility family," Health Economics, John Wiley & Sons, Ltd., vol. 17(12), pages 1329-1344, December.
    12. repec:eee:labchp:v:3:y:1999:i:pb:p:2567-2627 is not listed on IDEAS
    13. Guy Laroque & Bernard Salanie, 2004. "Salaire minimum et emploi en présence de négociations salariales," Annals of Economics and Statistics, GENES, issue 73, pages 1-22.
    14. Ken Burdett & Melvyn G. Coles, 1997. "Marriage and Class," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 141-168.
    15. Miyagawa, Eiichi, 2002. "Subgame-perfect implementation of bargaining solutions," Games and Economic Behavior, Elsevier, vol. 41(2), pages 292-308, November.
    16. repec:hal:spmain:info:hdl:2441/dc0ckec3fcb29ms9850c12h1p is not listed on IDEAS
    17. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    18. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, April.
    19. Chun, Youngsub, 1988. "The equal-loss principle for bargaining problems," Economics Letters, Elsevier, vol. 26(2), pages 103-106.
    20. Moulin, H., 1984. "Implementing the Kalai-Smorodinsky bargaining solution," Journal of Economic Theory, Elsevier, vol. 33(1), pages 32-45, June.
    21. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-1674, September.
    22. Etienne Lehmann & Bruno Van Der Linden, 2007. "On the Optimality of Search Matching Equilibrium When Workers Are Risk Averse," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(5), pages 867-884, October.
    23. Robert Shimer, 2006. "On-the-Job Search and Strategic Bargaining," Contributions to Economic Analysis, in: Structural Models of Wage and Employment Dynamics, pages 37-59, Emerald Group Publishing Limited.
    24. Binmore, Ken & Swierzbinski, Joe & Hsu, Steven & Proulx, Chris, 1993. "Focal Points and Bargaining," International Journal of Game Theory, Springer;Game Theory Society, vol. 22(4), pages 381-409.
    25. repec:adr:anecst:y:2004:i:73:p:01 is not listed on IDEAS
    26. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    27. Marcus Dittrich, 2010. "Minimum Wages and Unemployment Benefits in a Unionized Economy: A Game-Theoretic Approach," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 209-229, November.
    28. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    29. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, vol. 43(3), pages 513-518, May.
    30. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    31. Manser, Marilyn & Brown, Murray, 1980. "Marriage and Household Decision-Making: A Bargaining Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 31-44, February.
    32. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    33. Thomson, William, 1994. "Cooperative models of bargaining," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 35, pages 1237-1284, Elsevier.
    34. Ken Burdett & Randall Wright, 1998. "Two-Sided Search with Nontransferable Utility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 220-245, January.
    35. Gerber, Anke & Upmann, Thorsten, 2006. "Bargaining solutions at work: Qualitative differences in policy implications," Mathematical Social Sciences, Elsevier, vol. 52(2), pages 162-175, September.
    36. William Thomson (ed.), 2010. "Bargaining and the Theory of Cooperative Games: John Nash and Beyond," Books, Edward Elgar Publishing, number 13317.
    37. Boragan Aruoba, S. & Rocheteau, Guillaume & Waller, Christopher, 2007. "Bargaining and the value of money," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2636-2655, November.
    38. Bonilla Roberto & Burdett Kenneth, 2010. "On-the-Job Search and Labor Market Equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-28, March.
    39. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627, Elsevier.
    40. Peter P. Wakker, 2008. "Explaining the characteristics of the power (CRRA) utility family," Health Economics, John Wiley & Sons, Ltd., vol. 17(12), pages 1329-1344.
    41. Pieter A. Gautier & Coen N. Teulings & Aico Van Vuuren, 2010. "On-the-Job Search, Mismatch and Efficiency ," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(1), pages 245-272.
    42. Christopher Bruce & Jeremy Clark, 2012. "The Impact Of Entitlements And Equity On Cooperative Bargaining: An Experiment," Economic Inquiry, Western Economic Association International, vol. 50(4), pages 867-879, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dittrich, Marcus & Städter, Silvio, 2015. "Moral hazard and bargaining over incentive contracts," Research in Economics, Elsevier, vol. 69(1), pages 75-85.
    2. Laurence Jacquet & Etienne Lehmann & Bruno Linden, 2014. "Optimal income taxation with Kalai wage bargaining and endogenous participation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(2), pages 381-402, February.
    3. Robin Boadway & Katherine Cuff, 2018. "Optimal unemployment insurance and redistribution," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(3), pages 303-324, June.
    4. Claus-Jochen Haake & Thorsten Upmann & Papatya Duman, 2020. "Wage Bargaining and Employment Revisited: Separability and Efficiency in Collective Bargaining," CESifo Working Paper Series 8422, CESifo.
    5. Breda, Thomas & Haywood, Luke & Wang, Haomin, 2022. "Equilibrium Effects of Payroll Tax Reductions and Optimal Policy Design," IZA Discussion Papers 15810, Institute of Labor Economics (IZA).
    6. Claus-Jochen Haake & Thorsten Upmann & Papatya Duman, 2019. "The Decomposability of the Nash Bargaining Solution in Labor Markets," Working Papers CIE 128, Paderborn University, CIE Center for International Economics.
    7. Jacquet, Laurence & Lehmann, Etienne & Van der Linden, Bruno, 2011. "Optimal Redistributive Taxation with Both Labor Supply and Labor Demand Responses," IZA Discussion Papers 5642, Institute of Labor Economics (IZA).
    8. Claus‐Jochen Haake & Thorsten Upmann & Papatya Duman, 2023. "Wage bargaining and employment revisited: separability and efficiency in collective bargaining," Scandinavian Journal of Economics, Wiley Blackwell, vol. 125(2), pages 403-440, April.
    9. Lv, Wei & Li, Hongyi & Tang, Jiafu, 2017. "Bargaining model of labor disputes considering social mediation and bounded rationalityAuthor-Name: Liu, Dehai," European Journal of Operational Research, Elsevier, vol. 262(3), pages 1064-1071.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.
    2. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
    3. Michau, Jean-Baptiste, 2015. "Optimal labor market policy with search frictions and risk-averse workers," Labour Economics, Elsevier, vol. 35(C), pages 93-107.
    4. Andrey Launov & Klaus Wälde, 2013. "Estimating Incentive And Welfare Effects Of Nonstationary Unemployment Benefits," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(4), pages 1159-1198, November.
    5. Dittrich, Marcus & Städter, Silvio, 2015. "Moral hazard and bargaining over incentive contracts," Research in Economics, Elsevier, vol. 69(1), pages 75-85.
    6. Richard Rogerson & Robert Shimer & Randall Wright, 2004. "Search-Theoretic Models of the Labor Market-A Survey," NBER Working Papers 10655, National Bureau of Economic Research, Inc.
    7. Damdinsuren, Erdenebulgan & Zaharieva, Anna, 2023. "Expectation formation and learning in the labour market with on-the-job search and Nash bargaining," Labour Economics, Elsevier, vol. 81(C).
    8. Francesco Zanetti & Konstantinos Theodoridis, 2018. "State Dependence in Labor Market Fluctuations: Evidence, Theory, and Policy Implications," Economics Series Working Papers 856, University of Oxford, Department of Economics.
    9. Samir Amine & Sylvain Baumann & Pedro Lages Dos Santos, 2018. "Bargaining Solutions and Public Policies in Matching Models," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 3-14.
    10. Burgess, Simon & Turon, Hélène, 2010. "Worker flows, job flows and unemployment in a matching model," European Economic Review, Elsevier, vol. 54(3), pages 393-408, April.
    11. Engelhardt, Bryan & Rocheteau, Guillaume & Rupert, Peter, 2008. "Crime and the labor market: A search model with optimal contracts," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 1876-1891, October.
    12. Gabriele Cardullo, 2010. "Matching Models Under Scrutiny: An Appraisal Of The Shimer Puzzle," Journal of Economic Surveys, Wiley Blackwell, vol. 24(4), pages 622-656, September.
    13. Laurence Jacquet & Etienne Lehmann & Bruno Linden, 2014. "Optimal income taxation with Kalai wage bargaining and endogenous participation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(2), pages 381-402, February.
    14. Coles, Melvyn & Masters, Adrian, 2007. "Re-entitlement effects with duration-dependent unemployment insurance in a stochastic matching equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 2879-2898, September.
    15. Krolikowski, Pawel M. & McCallum, Andrew H., 2021. "Goods-market frictions and international trade," Journal of International Economics, Elsevier, vol. 129(C).
    16. L'Haridon, Olivier & Malherbet, Franck, 2009. "Employment protection reform in search economies," European Economic Review, Elsevier, vol. 53(3), pages 255-273, April.
    17. Martin, Daniel & Pierrard, Olivier, 2014. "On-the-job search and cyclical unemployment: Crowding out vs. vacancy effects," Journal of Economic Dynamics and Control, Elsevier, vol. 44(C), pages 235-250.
    18. Jackson, Paul, 2023. "Equilibrium underemployment," Labour Economics, Elsevier, vol. 81(C).
    19. Petrosky-Nadeau, Nicolas & Wasmer, Etienne, 2015. "Macroeconomic dynamics in a model of goods, labor, and credit market frictions," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 97-113.
    20. Manning, Alan, 2011. "Imperfect Competition in the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 11, pages 973-1041, Elsevier.

    More about this item

    Keywords

    Search and matching models; Bargaining theory; Nash; Egalitarian; Kalai–Smorodinsky;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:labeco:v:21:y:2013:i:c:p:42-58. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/labeco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.