Firms Debt and Finite-Horizon Wage Bargaining

Alberto Dalmazzo

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: The simple bargaining mode presented here analyses the effect of a predetermined level of debt repayment commitments on the wage bargaining process between a firm and its workforce. Even if the bargaining process between a firm and its workforce. Even if the bargaining structure is basically derived from Rubinstein (1982), the presence of debt's interests maturing over time is shown to imply finiteness in the bargaining horizon. The main consequence is that, in contrast with Rubinstein (1982), the parties' outside options always enter the perfect equilibrium payoffs, justifying their presence in the econometric specifications.

Date: 1991-11
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