Social preferences, monopsony and government intervention

Laszlo Goerke and Michael Neugart

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

Abstract: Monopsony power by firms and social preferences by consumers are well established. We analyze how wages and employment change in a monopsony if workers compare their income with that of a reference group. We show that the undistorted, competitive outcome may no longer constitute the benchmark for welfare comparisons and derive a condition that guarantees that the monopsony distortion is exactly balanced by the impact of social comparisons. We also demonstrate how wage restrictions and subsidies or taxes can be used to ensure this condition, both for a welfarist and a paternalistic welfare objective.

Date: 2021-05
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Published in Canadian Journal of Economics 2 (2021-05) : pp. 864-891

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https://tuprints.ulb.tu-darmstadt.de/27328

Related works:
Working Paper: Social preferences, monopsony and government intervention (2024)
Journal Article: Social preferences, monopsony and government intervention (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:dar:wpaper:128818

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