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Does Bargaining Matter in the Small Firm Matching Model?

42 Pages Posted: 13 Sep 2010  

Olivier l'Haridon

Ecole Normale Superieure de Cachan - Group of research on the Risk, Information and the Decision (GRID); Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA)

Franck Malherbet

University of Cergy-Pontoise - THEMA; IZA Institute of Labor Economics

Sebastien Perez-Duarte

European Central Bank (ECB); National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Abstract

In this article, we use a stylized model of the labor market to investigate the effects of three alternative and well-known bargaining solutions. We apply the Nash, the Egalitarian and the Kalai-Smorodinsky bargaining solutions in the small firm’s matching model of unemployment. To the best of our knowledge, this is the first attempt that has been made to implement and systematically compare these solutions in search-matching economies. Our results are twofold. First from the theoretical/methodological viewpoint, we extend a somewhat flexible search-matching economy to alternative bargaining solutions. In particular, we prove that the Egalitarian and the Kalai-Smorodinsky solutions are easily implementable and mathematically tractable within search-matching economies. Second, our results show that even though the traditional results of bargaining theory apply in this context, they are generally qualitatively different and quantitatively weaker than expected. This is of particular relevance in comparison with the results established in the earlier literature.

Keywords: search and matching models, bargaining theory, Nash, Egalitarian, Kalai-Smorodinsky

JEL Classification: C71, C78, J20, J60

Suggested Citation

l'Haridon, Olivier and Malherbet, Franck and Perez-Duarte, Sebastien, Does Bargaining Matter in the Small Firm Matching Model?. IZA Discussion Paper No. 5181. Available at SSRN: https://ssrn.com/abstract=1675692

Olivier L'Haridon (Contact Author)

Ecole Normale Superieure de Cachan - Group of research on the Risk, Information and the Decision (GRID) ( email )

61 Avenue du President Wilson
94235 Cachan
France

Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA)

106-112 Boulevard de l'Hopital
Paris Cedex 13, 75647
France

Franck Malherbet

University of Cergy-Pontoise - THEMA ( email )

33 boulevard du port
F-95011 Cergy-Pontoise Cedex, 95011
France

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Sebastien Perez-Duarte

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

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