On the Social Desirability of Centralized Wage Setting when Firms are Run by Biased Managers

Nicola Meccheri ()

The B.E. Journal of Economic Analysis & Policy, 2023, vol. 23, issue 3, 701-725

Abstract: This paper compares the welfare outcomes obtained under alternative unionization regimes (decentralized vs. centralized wage setting) in a duopoly market in which shareholders delegate strategic decisions to biased (overconfident or underconfident) managers. In such a framework, the common tenet that consumer surplus and overall welfare are always higher under decentralized wage setting is completely overturned. Indeed, in the presence of centralized unionization (industry-wide union), firm shareholders always prefer to hire more aggressive or less conservative managers and, as a result, output (consumer surplus) and overall welfare are larger than in a decentralized wage setting structure.

Keywords: unionization structure; strategic delegation; biased managers; social welfare (search for similar items in EconPapers)
JEL-codes: J51 L13 L22 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Working Paper: On the social desirability of centralized wage setting when fims are run by biased managers (2022)
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DOI: 10.1515/bejeap-2022-0321

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