Bargaining Delegation in Monopoly

Ishita Chatterjee and Bibhas Saha

No 13-09, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: We study eciency and distributional implications of bargaining in a monopoly, where the shareholders and the workers delegate the task of bargaining to a manager and a union leader respectively. Bargaining delegation leads to underproduction caus- ing the organizational pie to contract severely rendering mutual gains from delegation impossible. With an increase in the union's bargaining power pro t may rise and the union's utility may fall. This suggests that delegation can compensate for weaker bar- gaining power. Further, numerical examples con rm that if the shareholders and the workers had a choice over delegation, they would indeed choose to delegate, on some occasions giving rise to a Prisoners' Dilemma problem.

Pages: 15 pages
Date: 2013
New Economics Papers: this item is included in nep-mic
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