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Profit-Sharing: Does It Reduce Bargaining Inefficiencies ?

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  • Vannetelbosch, Vincent J.

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES); UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))

Abstract

Within an incomplete information framework, we develop a model of wage determination in a unionized Cournot oligopoly. The assumption of incomplete information allows the possibility of strikes, which waste industry potential ressources, at equilibrium. Facing such deadweight loss, the government or the social planner may decide to adopt a policy, like a profit-sharing scheme. Under two different bargaining structures (firm-level vs industry-level), we investigate the effects of adopting profit-sharing on the wage outcome and the bargaining inefficiencies, like strikes. Our main results are as follows. If the base wage bargaining takes place at the industry-level, then the introduction of a profit-sharing scheme increases the bargaining inefficiencies. But if the base wage bargaining takes place at the firm-level and the number of firms in the industry is greater than two, then the introduction of a profit-sharing scheme reduces the bargaining inefficiencies.

Suggested Citation

  • Vannetelbosch, Vincent J., 1997. "Profit-Sharing: Does It Reduce Bargaining Inefficiencies ?," LIDAM Discussion Papers IRES 1997009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:1997009
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Vannetelbosch, Vincent J., 1997. "Wage bargaining with incomplete information in an unionized Cournot oligopoly," European Journal of Political Economy, Elsevier, vol. 13(2), pages 353-374, May.
    3. Stewart, Geoff, 1989. "Profit-sharing in cournot oligopoly," Economics Letters, Elsevier, vol. 31(3), pages 221-224, December.
    4. Bensaid, Bernard & Gary-Bobo, Robert J., 1991. "Negotiation of profit-sharing contracts in industry," European Economic Review, Elsevier, vol. 35(5), pages 1069-1085, July.
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    7. Fung, K. C., 1989. "Unemployment, profit-sharing and Japan's economic success," European Economic Review, Elsevier, vol. 33(4), pages 783-796, April.
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    More about this item

    Keywords

    Wage bargaining; profit-sharing; incomplete information; strikes;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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