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A Reverse Holdup Problem

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  • Antonio Estache
  • Renaud Foucart

Abstract

In a model of horizontal matching on the labor market, we show that increasing the bargainingpower of workers may increase the incentive of some employers to switch to newproduction activities. In particular, this could lead to (i) higher wages, (ii) more jobs, (iii)better jobs and (iv) higher profits. Paradoxically, the median voter may object to the economicadjustments because search costs could cut the surplus for workers of the majority type, evenwhen it creates jobs for the other ones and increases aggregate surplus.

Suggested Citation

  • Antonio Estache & Renaud Foucart, 2013. "A Reverse Holdup Problem," Working Papers ECARES ECARES 2013-14, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:eca:wpaper:2013/142066
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    References listed on IDEAS

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    7. Samuel Bentolila & Juan J. Dolado & Juan F. Jimeno, 2012. "The New New Labour Market Reform in Spain: Objectives, Instruments, and Shortcomings," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 10(2), pages 03-07, 08.
    8. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-849, November.
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