Journal Article

Intra-firm Bargaining under Non-binding Contracts

Lars A. Stole and Jeffrey Zwiebel

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 63, issue 3, pages 375-410
Published in print July 1996 | ISSN: 0034-6527
e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.2307/2297888
Intra-firm Bargaining under Non-binding Contracts

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We present a new methodology for studying the problem of intra-firm bargaining, based on the notion that contracts cannot commit the firm and its agents to wages and employment. We develop and analyse a general non-cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party. Equilibrium firm profits are characterizable as both a weighted average of a neo-classical (non-bargaining) firm's profits and a generalization of Shapley value for a corresponding cooperative game. Furthermore, the resulting payoffs induce economically significant distortions in the firm's input and organizational-design decisions.

Journal Article.  0 words. 

Subjects: Economics

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