Implementing endogenous inside options in Nash wage bargaining models

Andreas Knabe

Mathematical Social Sciences, 2009, vol. 57, issue 2, 161-176

Abstract: The Rubinstein alternating-offers game shows that the threat point in Nash wage bargaining models should be the inside, instead of the outside, option. We provide a new way to implement inside options by explicitly modeling a utilitarian union's strike payoff. The solution to the dynamic bargaining system resulting from the endogeneity of the inside option can serve as a basis for richer, though still easily applicable, models of wage bargaining that are more in accordance with their game-theoretical underpinnings. The dynamics of the model also provide a theoretical justification for temporarily delayed labor market responses to policy changes.

Keywords: Dynamic; wage; bargaining; Labor; unions; Inside; options (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (4)

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