Bilateral Delegation in Duopoly Wage and Employment Bargaining

Ishita Chatterjee and Bibhas Saha

Managerial and Decision Economics, 2017, vol. 38, issue 4, 607-621

Abstract: We study bilateral delegation in wage and employment bargaining between firms and unions in a Cournot duopoly. Incentive delegation creates frictions for each party between its objectives of within‐firm rent extraction and market/job stealing from the rival firm. The net effect is restraint in production, resulting in a larger bargaining pie. But each player's payoff will be inversely related to his bargaining power. We also show that if players are given a choice to delegate, they will not resort to delegation when their bargaining power is sufficiently high. This is in contrast to the scenarios commonly assumed in many models. Copyright © 2016 John Wiley & Sons, Ltd.

Date: 2017
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