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Authority in Employment Contracts: A Bilateral Bargaining Model

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  • Alan Manning

Abstract

This paper takes a model of the employment contract which is incomplete in the sense that the required effort level is not exactly specified when employment is agreed and in which each worker negotiates their own contract with their employer. Given the incompleteness of the employment contract, residual rights of control over labour need to be specified. This paper analyses the allocation of these residual rights of control. It is argued that equilibrium employment contracts will tend to give the employer residual rights of control over labour, if workers are potential substitutes and give workers residual rights of control if workers are complements. However, it may not be the case that the equilibrium contracts maximise the available social surplus; in this case there is an argument for government intervention to regulate the form of employment contracts.

Suggested Citation

  • Alan Manning, 1991. "Authority in Employment Contracts: A Bilateral Bargaining Model," CEP Discussion Papers dp0021, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0021
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    References listed on IDEAS

    as
    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    3. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    4. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    5. Byoung Heon Jun, 1989. "Non-cooperative Bargaining and Union Formation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(1), pages 59-76.
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    Cited by:

    1. David Marsden, 2015. "The future of the German industrial relations model [Die Zukunft des deutschen Modells der Arbeitsbeziehungen]," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 48(2), pages 169-187, August.
    2. Charles C. Fischer, 1994. "The Valuation of Household Production: Divorce, Wrongful Injury and Death Litigation," American Journal of Economics and Sociology, Wiley Blackwell, vol. 53(2), pages 187-199, April.

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