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Union Wage Bargaining and the Incentive to Innovate

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  • Jörg Lingens

Abstract

We analyse the influence of wage bargaining on the firm´s research incentive. In a duopoly setting, firms invest resources into a Reinganum-type patent race. The wage is bargained for with a union. Besides the holdup and the strategic effect, which have been analysed before, we are able to identify a third effect of unionisation: through the Arrow effect. This effect increases the incentive for doing research. Solving the model numerically reveals that in sum, unionisation decreases the level of research investment. This result is independent of the bargaining institution and of the degree of product heterogeneity.

Suggested Citation

  • Jörg Lingens, 2009. "Union Wage Bargaining and the Incentive to Innovate," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(2), pages 260-280, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200906)165:2_260:uwbati_2.0.tx_2-q
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    References listed on IDEAS

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    1. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-460, March.
    2. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
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    Citations

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    Cited by:

    1. Minas Vlassis & Maria Varvataki, 2014. "Union-Oligopoly Bargaining and Vertical Differentiation: Do Unions Affect Quality?," Working Papers 1409, University of Crete, Department of Economics.
    2. Neto, António & Furukawa, Yuichi & Ribeiro, Ana Paula, 2017. "Can Trade Unions Increase Social Welfare? An R&D Model with Cash-in-Advance Constraints," MPRA Paper 77312, University Library of Munich, Germany.
    3. Lai, Chung-Hui & Wang, Vey, 2010. "The effects of unionization in an R&D growth model with (In)determinate equilibrium," MPRA Paper 27748, University Library of Munich, Germany.
    4. Minas Vlassis & Maria Varvataki, 2014. "Union-Oligopoly Bargaining and Vertical Differentiation: Do Unions Affect Quality? Dynamic Analysis," Working Papers 1410, University of Crete, Department of Economics.
    5. Chung-Hui Lai & Chen-Sheng Yang, 2018. "The Effects of Unionization in an R&D Growth Model with (In)determinate Equilibrium," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 14(2), pages 107-132, August.

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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