Endogenous bargaining power

We present a novel approach to N-person bargaining, based on the idea thatthe agreement reached in a negotiation is determined by how the directconflict resulting from disagreement would be resolved. Our basic buildingblock is the disagreement function, which maps each set of feasible outcomesinto a disagreement point. Using this function and a weak axiom basedon individual rationality we reach a unique solution: the agreement inthe shadow of conflict, ASC. This agreement may be construed as the limitof a sequence of partial agreements, each of which is reached as a functionof the parties relative power. We examine the connection between ASC andasymmetric Nash solutions. We show the connection between the power ofthe parties embodied in the ASC solution and the bias in the SWF thatwould select ASC as an asymmetric Nash solution.

Bargaining Power Dynamics and the Negotiation of Commercial Rights and Obligations: A Case of Athlete Agreements

This qualitative case study explored how the structural power imbalance in high performance sport influenced the bargaining process and resulting commercial rights and obligations of a single Canadian national sport organization’s (NSO1) Athlete Agreement. Principles comprising the doctrine of unconscionability, specifically the identification of a power imbalance between contracting parties, and the exploration of how that power imbalance influenced the terms of the contract, provided a framework to analyze factors influencing the commercial contents of NSO1’s Athlete Agreement. The results of this analysis revealed that despite the overarching influence of the inherent structural power imbalance on all aspects of NSO1 and its membership, an athletes’ level of commercial appeal can reach such heights as to balance the bargaining positions of both parties and subsequently influence the commercial contents of the Athlete Agreement.

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.

Parental investments in children: how bargaining and educational homogamy affect time allocation

This study examines parental time investment in their children, distinguishing between developmental and non-developmental care. Our analyses centre on three influential determinants: educational background, marital homogamy, and spouses' relative bargaining power. We find that the emphasis on quality care time is correlated with parents' education, and that marital homogamy reduces couple specialization, but only among the highly educated. In line with earlier research, we identify gendered parental behaviour. The presence of boys is an important condition for fathers' time dedication, but primarly among lower educated fathers. To the extent that parental stimulation is decisive for child outcomes, our findings suggest the persistence of important inequalities. This emerges through our special attention to behavioural differences across the educational distribution among households.

Ex post bargaining, labor coordination and wage formation at the firm level

We lay out a model of wage bargaining with two leading features:bargaining is ex post to relevant investments and there isindividual bargaining in firms without a Union. We compareindividual ex post bargaining to coordinated ex post bargainingand we analyze the effects on wage formation. As opposed to exante bargaining models, the costs of destroying the employmentrelationship play a crucial role in determining wages. Highfiring costs in particular yield a rent for employees. Ourtheory points to a employer size-wage effect that is independentof the production function and market power. We derive a simpleleast squares specification from the theoretical model thatallow us to estimate components of the wage premium fromcoordination. We reject the hypothesis that labor coordinationdoes not alter the extensive form of the bargaining game. Laborcoordination substantially increases bargaining power butdecreases labor's ability to pose costly threats to the firm.

Union power, minimum wage legislation endogenous labor supplies and production

The objective of this work is to study the impact of the unions' bargaining power on production and wages. We present a model where a competitive final good is produced through two substitutable intermediate goods, one produced by unskilled labor and the other by skilled labor. Potential workers decide at their cost to become skilled or unskilled and, thus, labor supplies are determined endogenously. We find that the reallocation of the labor supplies due to changes in the unskilled (or skilled) unions¿ bargaining power may have a positive impact on the final goods production. At the same time, total labor earnings increase with the unskilled unions¿ bargaining power if the final goods production increases too. We also show that the minimum wage legislation has efects similar to an increase in the bargaining power of the unskilled unions.

Union power, minimum wage legislation endogenous labor supplies and production

The objective of this work is to study the impact of the unions' bargaining power on production and wages. We present a model where a competitive final good is produced through two substitutable intermediate goods, one produced by unskilled labor and the other by skilled labor. Potential workers decide at their cost to become skilled or unskilled and, thus, labor supplies are determined endogenously. We find that the reallocation of the labor supplies due to changes in the unskilled (or skilled) unions¿ bargaining power may have a positive impact on the final goods production. At the same time, total labor earnings increase with the unskilled unions¿ bargaining power if the final goods production increases too. We also show that the minimum wage legislation has efects similar to an increase in the bargaining power of the unskilled unions.

Income and bargaining effects on education and health

In this paper, we examine the impacts of the reform in the rural pension system in Brazil in 1991 on schooling and health indicators. In addition, we use the reform to investigate the validity of the unitary model of household allocation by testing if there were uneven impacts on those indicators depending on the gender of the recipient. The main conclusion of the paper is that the reform had significantly positive effects on the outcomes of interest, especially on those co-residing with a male pensioner, indicating that the unitary model is not a well-specified framework to understand family allocation decisions. The highest impacts were on school attendance for boys, literacy for girls and illness for middle-age people. We explore a collective model as defined by Chiappori (1992) as one possible alternative representation for the decision-making process of the poor rural Brazilian families. In the cooperative Nash equilibrium, the reform effects can be divided into two pieces: a direct income effect and bargaining power effect. The data support the existence of these two different effects

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.

Wage bargaining, privatisation, ability to pay, and outside options:evidence from Hungary

This paper examines the determinants of short-term wage dynamics, using a sample of large Hungarian companies for the period of 1996-1999. We test the basic implications of an efficient contract model of bargaining between the incumbent employees and the managers, which we are unable to reject. In particular, there are structural differences between the ownership sectors consistent with our prior knowledge on relative bargaining strength and unionisation measures. Stronger bargaining position of workers leads to higher ability to pay elasticity of wages, and lower outside option elasticity. Our results indicate that while bargaining position of workers in domestic privatised firms may be weaker than in the state sector, the more robust difference relate to state sector workers versus the privatised firms with the majority foreign ownership. We examine several extensions. We augment the bargaining specification by controls related to workers' skills and find that the basic findings are robust to that. We take a closer look at the outside options of the workers. We find some interactive effects, where unemployment modify the impact of availability of rents on wages. We interpret our results as an indication that bargaining power of workers may be affected by changes in their outside options. We also experiment with one concise indicator of reservation wage which is closest to the theoretical model specification and combines sectoral wages, unemployment benefits and regional unemployment levels,. We found that measure performing well. Finally, we found that while responsiveness of wages towards ability to pay is higher in the state sector, variation in wage dynamics is lower. This may indicate some wage smoothing in the state sector, consistent with the preferences of employees.

Corporate taxation, corporate power, and corporate harm

Globalisation has increased corporate tax competition amongst states and facilitated widespread corporate tax avoidance. Some of the largest businesses now pay little or no tax: in some cases with the active assistance of governments. This article examines contemporary corporation tax policies, outlines some of the key methods corporations use to minimise their tax liabilities, explores the interdependencies between the demand for reduced tax liabilities and the professional infrastructure of tax planning and avoidance, and examines how the contemporary political economy of corporate taxation enhances the bargaining power of transnational corporations in the implementation of tax policy.

A vállalati likviditáskezelés szerepe eszközfedezettel rendelkező hitelszerződésekben. Az alkun alapuló megközelítés eredményei (The role of corporate liquidity management under secured debt financing Results of the bargaining approach)

A szerző azt a kérdést vizsgálja, hogy a vállalat működése során a likvid eszközök mekkora arányát tartsa fenn. A kérdést a finanszírozás szemszögéből veti fel, mivel a hitelezés okozta korlátok jelentősen befolyásolják a likvid eszköz tartalékolásának motivációit. A cikk a vállalkozói-hitelezői információs kapcsolat háromféle esetében mutatja be az eszközfedezettel rendelkező hitelek adósságszolgálatát meghatározó tényezőket. Elsőként a teljes információs viszony melletti stratégiákkal meghatározott adósságszolgálatot vizsgálja, majd a második típusú információs kapcsolatban a nem megfigyelhető vállalkozói erőfeszítéseket feltételezve adja meg az adósságszolgálat fizetésének ex ante és ex post egyensúlyát. Harmadikként, a nem igazolható vállalati adatok feltevése mellett teljes és részleges eszközfedezetre is meghatározza az optimális vállalkozói likviditási politikát, és tárgyalja az itt fennálló ellentéteket. Megmutatja, hogy részleges eszközfedezet mellett 1. újratárgyalható a hitelszerződés, és a stratégiai adósságszolgálatot nem lehet elkerülni, 2. a likviditásoptimalizálásnak nincs ex post Pareto-egyensúlyi megoldása, ugyanis a hitelszerződésben részt vevő felek alkuereje határozza meg a vállalat likviditásának szintjét. / === / This paper investigates what the liquid asset ratio for firms should be. Financing constraints significantly influence motivations for liquidity hoarding. The article shows the determinants of secured debt services for three different information cases of a lender-borrower relationship. First, it examines the strategic debt service under full information, and then, assuming non-observable entrepreneurial efforts, it gives the ex ante and ex post equilibria of the strategic debt service. The third case supposes non-verifiable firm information; this provides the optimal corporate liquidity policy and explains the contrary propositions. It shows that under not fully secured collateral, 1. the debt contract is renegotiable; the lender cannot avoid the strategic debt service, 2. there is no ex post optimal Pareto efficient solution to liquidity policy, because the corporate liquidity ratio is determined by the bargaining power of the partners in the debt contract.

Country risk, national cultural differences between partners and survival of international joint ventures in Brazil

This article aims to identify the main and interaction effects of two country-level variables, namely national distance and country risk, on the survival of international joint ventures in emerging markets. Research hypotheses predicting the negative impact of national distance and country risk on survival of international joint ventures are formulated in this article. These research hypotheses are examined in a sample of 234 international joint ventures formed in Brazil between 1973 and 2004. These international joint ventures were subjected to an event history analysis over a period of time ranging from 1973 to 2006. The empirical results show that large national cultural differences between local and foreign partners increase the instability of international joint ventures, whereas the survival of these alliances does not seem to be affected either by the economic and political uncertainty of Brazil. Furthermore, the national distance between local and foreign partners has effects on survival that are variable according to the life cycle of international joint ventures. (C) 2007 Elsevier Ltd. All rights reserved.