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Foreign Direct Investment and Wage BargainingRobin NaylorUniversity of Warwick - Department of Economics Michele SantoniUniversity of Milan - Dipartimento di Economia Politica e Aziendale (DEPA) October 1999 CSGR Working Paper No. 41/99 Abstract: We derive the sub-game perfect Nash equilibria for the foreign direct investment (FDI) game played between two unionised firms. Among other results, we show that FDI is less likely, ceteris paribus, the greater is union bargaining power, the stronger the weight the union attaches to wages, and the more substitutable are firms? products in the potential host country. We derive results concerning the conditions under which FDI will be reciprocal. We also examine conditions under which the FDI game between firms will possess the characteristics of a Prisoners? Dilemma. Finally, we consider the possibility that firms might delegate wage determination to unions as a method of strategic deterrence against entry by FDI.
Number of Pages in PDF File: 28 JEL Classification: J51, L13, F12, F23 working papers seriesDate posted: February 15, 2000Suggested Citation |
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