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Organizational Design and Technology Choice under Intrafirm Bargaining: Comment

Organizational Design and Technology Choice under Intrafirm Bargaining: Comment Organizational Design and Technology Choice under Intrafirm Bargaining: Comment By CATHERINE C. DE FONTENAY AND JOSHUA S. GANS* In a series of papers, Lars A. Stole and Jeffrey Zwiebel (1996a, b) developed a model of intrafirm wage bargaining that describes how a firm’s employment decision can act as an instrument to control the hold-up power of workers. In their model, workers are irreplaceable in the short run, and therefore possess some bargaining power. The firm can depress the hold-up power of any one worker by choosing to expand employment ex ante. They show that the firm does indeed choose to expand employment above the level that would be chosen in the absence of hold-up power—to such an extent that bargained wages are driven down to workers’ outside options. Thus there is greater equilibrium employment than would be the case in a complete contracting world. Stole and Zwiebel’s (hereafter, SZ) focus on the strategic role of employment decisions on wage bargaining and how it can generate overhiring, stands in contrast to other models of labor-market bargaining that lead to involuntary unemployment.1 For example, Avner Shaked and John Sutton (1984) focus on the bargaining power of insiders relative to outsiders http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Organizational Design and Technology Choice under Intrafirm Bargaining: Comment

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Publisher
American Economic Association
Copyright
Copyright © 2003 by the American Economic Association
Subject
Shorter Papers
ISSN
0002-8282
DOI
10.1257/000282803321455412
Publisher site
See Article on Publisher Site

Abstract

Organizational Design and Technology Choice under Intrafirm Bargaining: Comment By CATHERINE C. DE FONTENAY AND JOSHUA S. GANS* In a series of papers, Lars A. Stole and Jeffrey Zwiebel (1996a, b) developed a model of intrafirm wage bargaining that describes how a firm’s employment decision can act as an instrument to control the hold-up power of workers. In their model, workers are irreplaceable in the short run, and therefore possess some bargaining power. The firm can depress the hold-up power of any one worker by choosing to expand employment ex ante. They show that the firm does indeed choose to expand employment above the level that would be chosen in the absence of hold-up power—to such an extent that bargained wages are driven down to workers’ outside options. Thus there is greater equilibrium employment than would be the case in a complete contracting world. Stole and Zwiebel’s (hereafter, SZ) focus on the strategic role of employment decisions on wage bargaining and how it can generate overhiring, stands in contrast to other models of labor-market bargaining that lead to involuntary unemployment.1 For example, Avner Shaked and John Sutton (1984) focus on the bargaining power of insiders relative to outsiders

Journal

American Economic ReviewAmerican Economic Association

Published: Mar 1, 2003

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