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Wage bargaining and employment revisited: separability and efficiency in collective bargaining*

Wage bargaining and employment revisited: separability and efficiency in collective bargaining* We analyse the two‐dimensional Nash bargaining solution (NBS) by deploying the standard labour market negotiations model of McDonald and Solow. We show that the two‐dimensional bargaining problem can be decomposed into two one‐dimensional problems, such that the two solutions together replicate the solution of the two‐dimensional problem if the NBS is applied. The axiom of “independence of irrelevant alternatives” is shown to be crucial for this type of decomposability. This result has significant implications for actual negotiations because it allows for the decomposition of a multi‐dimensional bargaining problem into one‐dimensional problems – and thus helps to facilitate real‐world negotiations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Scandinavian Journal of Economics Wiley

Wage bargaining and employment revisited: separability and efficiency in collective bargaining*

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References (24)

Publisher
Wiley
Copyright
© 2023 The editors of The Scandinavian Journal of Economics.
ISSN
0347-0520
eISSN
1467-9442
DOI
10.1111/sjoe.12518
Publisher site
See Article on Publisher Site

Abstract

We analyse the two‐dimensional Nash bargaining solution (NBS) by deploying the standard labour market negotiations model of McDonald and Solow. We show that the two‐dimensional bargaining problem can be decomposed into two one‐dimensional problems, such that the two solutions together replicate the solution of the two‐dimensional problem if the NBS is applied. The axiom of “independence of irrelevant alternatives” is shown to be crucial for this type of decomposability. This result has significant implications for actual negotiations because it allows for the decomposition of a multi‐dimensional bargaining problem into one‐dimensional problems – and thus helps to facilitate real‐world negotiations.

Journal

The Scandinavian Journal of EconomicsWiley

Published: Apr 1, 2023

Keywords: Efficient bargains; labour market negotiations; Nash bargaining solution; restricted bargaining games; sequential bargaining

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