Intrafirm Bargaining Under Nonbinding Contracts

Review of Economic Studies, July 1996, 63(3)

Posted: 16 Feb 2014

See all articles by Lars Stole

Lars Stole

University of Chicago - Booth School of Business

Jeffrey Zwiebel

Stanford Graduate School of Business

Date Written: February 1, 1996

Abstract

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

Stole, Lars A. and Zwiebel, Jeffrey H., Intrafirm Bargaining Under Nonbinding Contracts (February 1, 1996). Review of Economic Studies, July 1996, 63(3). Available at SSRN: https://ssrn.com/abstract=2396167

Lars A. Stole (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7309 (Phone)
773-702-0458 (Fax)

Jeffrey H. Zwiebel

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-2917 (Phone)
650-725-7979 (Fax)

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