Efficient Over-manning

David de la Croix and Eric Toulemonde

Oxford Economic Papers, 1995, vol. 47, issue 3, 493-500

Abstract: The usual 'efficient' bargaining solution between a monopolistic firm and a union has always been derived under the constraint that the firm produces on its production frontier. The authors show that, if the union is risk-averse and powerful enough, this constrained efficient bargaining solution may lead to a negative marginal revenue. In this case, it is mutually beneficial to lower the output level and to engage more workers, producing therefore below the production frontier. The presence of this efficient over-manning may invalidate part of the testing literature on bargaining. Copyright 1995 by Royal Economic Society.

Date: 1995
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