Intrafirm Bargaining Under Nonbinding Contracts
Review of Economic Studies, July 1996, 63(3)
Posted: 16 Feb 2014
Date Written: February 1, 1996
We present a new methodology for studying the problem of intra-firm bargaining, based on the notion that contracts cannot commit the firm and its agents to wages and employment. We develop and analyse a general non-cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party. Equilibrium firm profits are characterizable as both a weighted average of a neo-classical (non-bargaining) firm's profits and a generalization of Shapley value for a corresponding cooperative game. Furthermore, the resulting payoffs induce economically significant distortions in the firm's input and organizational-design decisions.
Keywords: Contract theory, Incentives
JEL Classification: C70, D82
Suggested Citation: Suggested Citation