Inefficient equilibria in wage bargaining with discount rates varying in time

Ahmet Ozkardas (1) , Agnieszka Rusinowska (2, 3)

1 Turgut Ozal University
2 CES - Centre d'économie de la Sorbonne
3 PSE - Paris School of Economics

We consider a union-firm wage bargaining in which the union must choose between strike and holdout in case of disagreement, and preferences of the union and the firm are expressed by sequences of discount rates varying in time. We show that there may exist inefficient subgame perfect equilibria in the model under which the union engages in several periods of strikes prior to reaching a final agreement. For an inefficient equilibrium to exist, the status quo wage must be sufficiently low and the amounts that the firm offers for itself in the subgame perfect equilibrium under the exogenous always strike decision in every odd period before reaching an agreement must be sufficiently low.

Keywords: discount rates

Domains: Economics and Finance

Ahmet Ozkardas, Agnieszka Rusinowska. Inefficient equilibria in wage bargaining with discount rates varying in time. Economics Bulletin, 2015, 35 (3), pp.1744-1751. ⟨hal-01241273⟩