On Striking for a Bargain between Two Completely Informed Agents

H.E.D. Houba; Q. Wen

doi:10.1007/s00199-007-0306-8

On Striking for a Bargain between Two Completely Informed Agents

H.E.D. Houba, Q. Wen

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Abstract

This paper provides a thorough equilibrium analysis of a wage contract negotiation model where the union must choose between strike and holdout between offers and counter-offers. When the union and the firm have different discount factors, delay in reaching an agreement may Pareto dominate many immediate agreements. We derive the exact bounds of equilibrium payoffs and characterize the equilibrium strategy profiles that support these extreme equilibrium payoffs for all discount factors. In particular, our analysis clarifies open issues on the maximal wage in this model when the union has a higher discount factor than the firm. © 2007 Springer-Verlag.

Original language	English
Pages (from-to)	509-519
Journal	Economic Theory
Volume	37
DOIs	https://doi.org/10.1007/s00199-007-0306-8
Publication status	Published - 2007

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AB - This paper provides a thorough equilibrium analysis of a wage contract negotiation model where the union must choose between strike and holdout between offers and counter-offers. When the union and the firm have different discount factors, delay in reaching an agreement may Pareto dominate many immediate agreements. We derive the exact bounds of equilibrium payoffs and characterize the equilibrium strategy profiles that support these extreme equilibrium payoffs for all discount factors. In particular, our analysis clarifies open issues on the maximal wage in this model when the union has a higher discount factor than the firm. © 2007 Springer-Verlag.

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VL - 37

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JO - Economic Theory

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On Striking for a Bargain between Two Completely Informed Agents

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