Insuring Customers of a Unionized Firm Against Loss of Network Benefits

David Frankel

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: We study how optimally to insure customers of a unionized firm, such as an auto maker, against the loss of network benefits that occurs when other consumers abandon the firm. The union first announces a wage. A random demand shock is then realized. The firm then chooses its price and, finally, consumers decide whether or not to buy from the firm. Common knowledge of payoffs is perturbed slightly in order to obtain a unique outcome. In this outcome the union chooses an excessive wage, leading consumers to abandon the firm too often. The first best can be costlessly attained by providing consumers with countercyclical insurance.

Keywords: insurance; Unions; Crises; network externalities; Network Benefits; Network Effects; Global games; Optimal Public Policy (search for similar items in EconPapers)
JEL-codes: C72 D42 D62 H21 (search for similar items in EconPapers)
Date: 2015-02-04
New Economics Papers: this item is included in nep-gth and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www2.econ.iastate.edu/papers/p18580-2015-02-04.pdf (application/pdf)

Related works:
Working Paper: Insuring customers of a unionized firm against loss of network benefits (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:38580

Access Statistics for this paper

More papers in Staff General Research Papers Archive from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC.
Bibliographic data for series maintained by Curtis Balmer ().