Self-Enforcing Union Contracts: Efficient Investment and Employment

John Addison and John Chilton

The Journal of Business, 1998, vol. 71, issue 3, 349-69

Abstract: Carliss Baldwin (1983) asks whether a firm can credibly deter union opportunism that would lead to underinvestment. The authors show that the punishments Baldwin considers credible exclude tougher threats that only have the appearance of being self-destructive. If the firm's discount factor is sufficiently close to one, union opportunism can indeed be deterred. Moreover, the authors show that given the firm's discount factor, a shorter lifetime of capital does not necessarily promote efficiency. Although, as Baldwin emphasizes, it does enhance the firm's ability to punish union opportunism, it also creates adverse incentives for the firm to engage in opportunistic employment cuts. Copyright 1998 by University of Chicago Press.

Date: 1998
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