Bargaining for power and information : an experimental and theoretical analysis of the interaction between institutions, externalities and adverse selection

Bargaining is the building block of many economic interactions, ranging from bilateral to multilateral encounters and from situations in which the actors are individuals to negotiations between firms or countries. In all these settings, economists have been intrigued for a long time by the fact that some projects, trades or agreements are not realized even though they are mutually beneficial. On the one hand, this has been explained by incomplete information. A firm may not be willing to offer a wage that is acceptable to a qualified worker, because it knows that there are also unqualified workers and cannot distinguish between the two types. This phenomenon is known as adverse selection. On the other hand, it has been argued that even with complete information, the presence of externalities may impede efficient outcomes. To see this, consider the example of climate change. If a subset of countries agrees to curb emissions, non-participant regions benefit from the signatories’ efforts without incurring costs. These free riding opportunities give rise to incentives to strategically improve ones bargaining power that work against the formation of a global agreement. This thesis is concerned with extending our understanding of both factors, adverse selection and externalities. The findings are based on empirical evidence from original laboratory experiments as well as game theoretic modeling. On a very general note, it is demonstrated that the institutions through which agents interact matter to a large extent. Insights are provided about which institutions we should expect to perform better than others, at least in terms of aggregate welfare. Chapters 1 and 2 focus on the problem of adverse selection. Effective operation of markets and other institutions often depends on good information transmission properties. In terms of the example introduced above, a firm is only willing to offer high wages if it receives enough positive signals about the worker’s quality during the application and wage bargaining process. In Chapter 1, it will be shown that repeated interaction coupled with time costs facilitates information transmission. By making the wage bargaining process costly for the worker, the firm is able to obtain more accurate information about the worker’s type. The cost could be pure time cost from delaying agreement or cost of effort arising from a multi-step interviewing process. In Chapter 2, I abstract from time cost and show that communication can play a similar role. The simple fact that a worker states to be of high quality may be informative. In Chapter 3, the focus is on a different source of inefficiency. Agents strive for bargaining power and thus may be motivated by incentives that are at odds with the socially efficient outcome. I have already mentioned the example of climate change. Other examples are coalitions within committees that are formed to secure voting power to block outcomes or groups that commit to different technological standards although a single standard would be optimal (e.g. the format war between HD and BlueRay). It will be shown that such inefficiencies are directly linked to the presence of externalities and a certain degree of irreversibility in actions. I now discuss the three articles in more detail. In Chapter 1, Olivier Bochet and I study a simple bilateral bargaining institution that eliminates trade failures arising from incomplete information. In this setting, a buyer makes offers to a seller in order to acquire a good. Whenever an offer is rejected by the seller, the buyer may submit a further offer. Bargaining is costly, because both parties suffer a (small) time cost after any rejection. The difficulties arise, because the good can be of low or high quality and the quality of the good is only known to the seller. Indeed, without the possibility to make repeated offers, it is too risky for the buyer to offer prices that allow for trade of high quality goods. When allowing for repeated offers, however, at equilibrium both types of goods trade with probability one. We provide an experimental test of these predictions. Buyers gather information about sellers using specific price offers and rates of trade are high, much as the model’s qualitative predictions. We also observe a persistent over-delay before trade occurs, and this mitigates efficiency substantially. Possible channels for over-delay are identified in the form of two behavioral assumptions missing from the standard model, loss aversion (buyers) and haggling (sellers), which reconcile the data with the theoretical predictions. Chapter 2 also studies adverse selection, but interaction between buyers and sellers now takes place within a market rather than isolated pairs. Remarkably, in a market it suffices to let agents communicate in a very simple manner to mitigate trade failures. The key insight is that better informed agents (sellers) are willing to truthfully reveal their private information, because by doing so they are able to reduce search frictions and attract more buyers. Behavior observed in the experimental sessions closely follows the theoretical predictions. As a consequence, costless and non-binding communication (cheap talk) significantly raises rates of trade and welfare. Previous experiments have documented that cheap talk alleviates inefficiencies due to asymmetric information. These findings are explained by pro-social preferences and lie aversion. I use appropriate control treatments to show that such consideration play only a minor role in our market. Instead, the experiment highlights the ability to organize markets as a new channel through which communication can facilitate trade in the presence of private information. In Chapter 3, I theoretically explore coalition formation via multilateral bargaining under complete information. The environment studied is extremely rich in the sense that the model allows for all kinds of externalities. This is achieved by using so-called partition functions, which pin down a coalitional worth for each possible coalition in each possible coalition structure. It is found that although binding agreements can be written, efficiency is not guaranteed, because the negotiation process is inherently non-cooperative. The prospects of cooperation are shown to crucially depend on i) the degree to which players can renegotiate and gradually build up agreements and ii) the absence of a certain type of externalities that can loosely be described as incentives to free ride. Moreover, the willingness to concede bargaining power is identified as a novel reason for gradualism. Another key contribution of the study is that it identifies a strong connection between the Core, one of the most important concepts in cooperative game theory, and the set of environments for which efficiency is attained even without renegotiation.

A Bargaining Model of Holdouts and Takings

The holdout problem is commonly cited as the justification for eminent domain, but the nature of the problem is not well understood. This paper models the holdout problem in a bargaining framework, where a developer seeks to acquire several parcels of land for a large-scale development. We show that in the absence of eminent domain, holdouts are inevitable, threatening costly delay. However, if the developer has the power to use eminent domain to acquire the land from holdouts, all sellers will bargain, thus avoiding delay. An offsetting cost is that owners may negotiate prices below their true value, possibly resulting in excessive transfer of land to the developer.

Ex ante bargaining and ex post enforcement in trade credit supply: theory and evidence from China

If payment of goods is easily default, economic transaction may deeply suffer from the risk. This risky environment formed a mechanism that governs how economic transaction is realized, subsequently how trade credit is given. This paper distinguished ex ante bargaining and ex post enforcement, then modeled that bargaining power reduces trade credit ex ante, and ex post enforcement power and cash in hand of buyer can enhances both trade amount and trade credit in a presence of default risk. We modeled this relationship in order to organize findings from previous literature and from our original micro data on detailed transaction in China to consistently understand the mechanism governing trade credit. Then empirically tested a structure from the theoretical prediction with data. Results show that ex post enforcement power of seller mainly determines size of trade credit and trade amount, cash in hand of buyer can substitute with enforcement power; Bargaining power of seller is exercised to reduces trade credit and trade amount for avoiding default risk, but it simultaneously improves enforcement power as well. We found that ex post enforcement power consists of (ex ante) bargaining power on between two parties and intervention from the third party. However, its magnitude is far smaller than the direct impact to reduce trade credit and trade amount.

Apontamentos sobre política criminal e a plea bargaining / Walter Fanganiello maierovitch. --

Inclui bibliografia.

Shop collective bargaining: a study of wage determination in the men's garment industry

by Francis Joseph Haas.

A House Divided: Employers & the Challenge to Pattern Bargaining in a United Germany. CES Germany & Europe Working Papers, No. 05.5, 1994

Recently, increasing numbers of new German firms have begun to break from tradition and refuse to join employers' associations. Simultaneously, an unprecedented portion of affiliates have begun to reconsider employers' association membership. The spectre of declining membership in German employers' associations-century-old pillars of organized capitalism-is particularly noteworthy because of the importance of these institutions to the German economy as a whole. Some observers have attributed this trend to the impact of German unification, yet a careful analysis reveals that its principal causes arose in the decade preceding it. The economic strain of unification, however, has accelerated "association flight'' and has provided dissidents with an unprecedented opportunity to challenge the hegemony of employers' associations over the regulation of wages and working conditions in the Federal Republic.

Central Bank Independence & Coordinated Wage Bargaining: Their Interaction in Germany & Europe. CES Germany & Europe Working Papers, No. 04.4, 1994

This paper explores the fashionable proposition that with a more independent central bank, a country can secure lower levels of inflation without higher unemployment. Hall shows that the operation of the central bank depends on the character of wage bargaining. He illustrates this point with some cross-national data and an analysis of how coordinated wage bargaining is secured in Germany. He concludes by exploring the implications of this analysis for European Monetary Union.

An Italian job: the need for collective wage bargaining reform. Bruegel Policy Brief ISSUE 2016/11 - JULY 2016

Highlights: Since the mid-1990s, Italy has been characterised by a lack of labour productivity growth, combinedwith a 60 percent growth in labour costs, 20 percentage points above euro-area average consumer price growth. As a consequence, Italy has become less competitive compared to its euro-area partners, the profitability of its firms has dropped and real GDP-per-capita has flatlined. • At the root of the substantial discrepancy between wages and productivity is Italy’s system of centralised wage bargaining which, in many ways, is designed without regard for the underlying industrial structure and geographical heterogeneity of the Italian economy.This has fostered perverse incentives and imbalances within Italy. • Collective wage bargaining, and in particular the determination of base salaries, should be moved from the national to the regional level for all contracts, in the public and private sectors.The Mezzogiorno,which might superficially be seen as losing out from this policy, would actually gain the most in competitiveness terms. • Furthermore, measures should be taken so that, in the long run, the Italian industrial structure evolves into a less fragmented small-company-based economy. This firm consolidation would likely expand the use of firm-level agreements and performance payments, and would improve Italy’s productivity and competitiveness overall.

Collective bargaining agreement : AFSCME AFL-CIO, local 2478 and the U.S. Commission on Civil Rights.

"January 31, 1985."

Faculty bargaining, a conceptual discussion : final report /

"Project no. IB 082; grant no. OEG-2-710082."

Information for employers and unions entering into a collective bargaining relationship for the first time : an address at the Information Program for Labor and Management at West Virginia University, April 18, 1963.

Mode of access: Internet.

Collective bargaining provisions : employee-benefit plans /

"September 1949."