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Collective Bargaining under Non-binding Contracts

Author

Listed:
  • Sabien Dobbelaere

    (VU University Amsterdam)

  • Roland Iwan Luttens

    (Ghent University, CORE - Cath. University Louvain)

Abstract

We introduce collective bargaining in a static framework where the firm and its risk-neutral employees negotiate over wages in a non-binding contract setting. Our main result is the equivalence between the non-binding collective equilibrium wage-employment contract and the equilibrium contract under binding risk-neutral efficient bargaining. We also demonstrate that our non-cooperative equilibrium wages and profits coincide with the Owen values of the corresponding cooperative game with the coalitional structure that follows from unionization.

Suggested Citation

  • Sabien Dobbelaere & Roland Iwan Luttens, 2011. "Collective Bargaining under Non-binding Contracts," Tinbergen Institute Discussion Papers 11-041/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20110041
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    References listed on IDEAS

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    1. Cahuc, Pierre & Wasmer, Etienne, 2001. "Does Intrafirm Bargaining Matter In The Large Firm'S Matching Model?," Macroeconomic Dynamics, Cambridge University Press, vol. 5(5), pages 742-747, November.
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    4. Pierre Cahuc & Francois Marque & Etienne Wasmer, 2008. "A Theory Of Wages And Labor Demand With Intra-Firm Bargaining And Matching Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 943-972, August.
    5. Catherine C. de Fontenay & Joshua S. Gans, 2003. "Organizational Design and Technology Choice under Intrafirm Bargaining: Comment," American Economic Review, American Economic Association, vol. 93(1), pages 448-455, March.
    6. Nickell, S J & Andrews, M, 1983. "Unions, Real Wages and Employment in Britain 1951-79," Oxford Economic Papers, Oxford University Press, vol. 35(0), pages 183-206, Supplemen.
    7. Dale T. Mortensen, 2009. "Wage Dispersion in the Search and Matching Model with Intra-Firm Bargaining," NBER Working Papers 15033, National Bureau of Economic Research, Inc.
    8. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
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    Cited by:

    1. Montez, João, 2014. "One-to-many bargaining when pairwise agreements are non-renegotiable," Journal of Economic Theory, Elsevier, vol. 152(C), pages 249-265.

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    More about this item

    Keywords

    Collective bargaining; union; firm; bargaining power; non-binding contract;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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