On striking for a bargain between two completely informed agents

Abstract

This paper provides a thorough equilibrium analysis of a wage contract negotiation model where the union must choose between strike and holdout between offers and counter-offers. When the union and the firm have different discount factors, delay in reaching an agreement may Pareto dominate many immediate agreements. We derive the exact bounds of equilibrium payoffs and characterize the equilibrium strategy profiles that support these extreme equilibrium payoffs for all discount factors. In particular, our analysis clarifies open issues on the maximal wage in this model when the union has a higher discount factor than the firm.

Extreme equilibria in the negotiation model with different time preferences

“…When the players have different discount factors, however, many equilibrium payoffs are above the bargaining frontier even though disagreement payoffs are not. As Houba and Wen (2008) demonstrate, unacceptable offers do support extreme SPEs in Fernandez and Glazer (1991) when the players have different discount factors. From Proposition 2 we obtain the responding player's worst SPE payoff:…”

“…The set of equilibrium outcomes is characterized by the extreme equilibria -equilibria that give each player either his worst or best equilibrium payoff. Houba and Wen (2008) demonstrate Pareto efficient delay can be a part of the extreme equilibria in the wage negotiation model when players have different time preferences.…”

“…2 In presenting the model of Rubinstein (1982), Fudenberg and Tirole (1991) include the possibility of making unacceptable offers in the backward-induction technique. Although the analysis of Houba and Wen (2008) characterizes the extreme equilibria in the model of Fernandez and Glazer (1991) by taking all these considerations into account, their analysis is too specific to be applicable in a general negotiation model. Thus, this paper adapts the backward-induction technique to study the extreme equilibrium payoffs in the general case.…”

Sustainable Development Mechanism of Avoiding Group Conflict and Symbiosis: A Study on Labor Disputes

“…e game strategies aimed to help two parties reach a mutually agreeable rate for wage increasing sustainably in the future [4]. Houba and Wen settled questions concerning on the contract negotiation model when two parties had different discount factors and discussed the strategy for the employees or unions to achieve an agreement of equilibrium payoff [5].…”

On the role of outside options in wage renegotiation

“… See Bolt (1995) andHouba and Wen (2008) for further analysis of the wage bargaining model with the option to strike. See also further research along these lines byBusch and Wen (1995) Avery and Zemsky (1994).…”