Bilateral Delegation, Wage Bargaining and Managerial Incentives: Implications for Efficiency and Distribution

Ishita Chatterjee and Bibhas Saha

No 28, University of East Anglia Applied and Financial Economics Working Paper Series from School of Economics, University of East Anglia, Norwich, UK.

Abstract: We develop a model of bilateral delegation in wage and employment bargaining to study efficiency and distributional implications in monopoly and in Cournot duopoly. In both markets delegation causes underproduction, but has contrasting implications for bargaining pie and for its distribution. In monopoly the bargaining pie contracts. In duopoly the bargaining pie expands, sometimes even up to the collusive level suggesting that delegation is conducive to implicit collusion. Surprisingly, a party's payoff can be inversely related to its bargaining power. The well-known duopoly result of overproduction occurs only in unilateral delegations and when the delegating party is sufficiently strong.

Keywords: Managerial incentives; efficient bargaining; bilateral delegation; implicit collusion (search for similar items in EconPapers)
JEL-codes: D43 L12 L14 (search for similar items in EconPapers)
Date: 2011-07-19
New Economics Papers: this item is included in nep-bec
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Citations: View citations in EconPapers (5)

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