Intra-firm Bargaining under Non-binding Contracts

Lars Stole and Jeffrey Zwiebel

The Review of Economic Studies, 1996, vol. 63, issue 3, 375-410

Abstract: We present a new methodology for studying the problem of intra-firm bargaining, based on the notion that contracts cannot commit the firm and its agents to wages and employment. We develop and analyse a general non-cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party. Equilibrium firm profits are characterizable as both a weighted average of a neo-classical (non-bargaining) firm's profits and a generalization of Shapley value for a corresponding cooperative game. Furthermore, the resulting payoffs induce economically significant distortions in the firm's input and organizational-design decisions.

Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:63:y:1996:i:3:p:375-410.

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