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Bilateral Delegation, Wage Bargaining, and Innovation

Author

Listed:
  • Arijit Mukherjee
  • Bibhas Saha

Abstract

A firm undertakes workers' productivity improving R&D before negotiating wage with the union, where negotiation can take place between their incentivised delegates. Under bilateral delegation profit, R&D and productivity-wage gap all increase, whilst the union's utility decreases, along with the union's bargaining power. However, to secure wage gains from productivity improvements via greater R&D and to ensure Pareto improvement in payoffs, the union should refrain from its own delegation, while the firm delegates alone. This will indeed be the equilibrium outcome if the union can commit not to delegate and if its bargaining power is above a critical level.

Suggested Citation

  • Arijit Mukherjee & Bibhas Saha, 2024. "Bilateral Delegation, Wage Bargaining, and Innovation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 180(4), pages 648-680.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2024-0023
    DOI: 10.1628/jite-2024-0023
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    More about this item

    Keywords

    managerial incentives; right-to-manage bargaining; bilateral delegation; R&D; productivity-wage gap;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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