Robustness of Intermediate Agreements and Bargaining Solutions

Most real-life bargaining is resolved gradually; two parties reach intermediate agreements without knowing the whole range of possibilities. These intermediate agreements serve as disagreement points in subsequent rounds. Cooperative bargaining solutions ignore these dynamics and can therefore yield accurate predictions only if they are robust to its specification. We identify robustness criteria which are satisfied by four of the best-known bargaining solutions, the Nash, Kalai-Smorodinsky, Proportional and Discrete Raiffa solutions. We show that the “robustness of intermediate agreements” plus additional well-known and plausible axioms, provide the first characterization of the Discrete Raiffa solution and novel axiomatizations of the other three solutions. Hence, we provide a unified framework for comparing these solutions’ bargaining theories.Nash’s bargaining problem, robustness, intermediate agreements, the Discrete Raiffa solution, the Nash solution, the Kalai-Smorodinsky solution, Proportional solutions.

Third-Party Intervention and the Preservation of Bargaining Relationships

This article uses longitudinal contact data to examine if third-party dispute resolution procedures available in Ontario improve the health of bargaining relationships and contribute to their preservation. It performs this in two manners: (1) using survival analysis to see how the mechanisms correlate with the likelihood of relationship dissolution and (2) using dynamic panel models to observe their state dependence. The latter is undertaken to see if third-party intervention pushes the parties to settle subsequent agreements earlier in the process – a finding that would reveal another aspect of relationship preservation if those earlier interventions are shown to correlate with lower likelihoods of dissolution. While the survival analysis does show that the earlier procedures in the dispute resolution process associate with lower likelihoods of dissolution than later ones, the dynamic panel model estimates do not indicate that third-party intervention induces voluntary or even earlier settlements in subsequent rounds of bargaining

Firm Heterogeneity and Wages Under Different Bargaining Regimes: Does a Centralised Union Care for Low-productivity Firms?

This paper studies the relationship between wages and the degree of firm heterogeneity in a given industry under different wage setting structures. To derive testable hypotheses, we set up a theoretical model that analyses the sensitivity of wages to the variability in productivity conditions in a unionsised oligopoly framework. The model distinguishes centralised and decentralised wage determination. The theoretical results predict wages to be negatively associated with the degree of firm heterogeneity under centralised wage-setting, as unions internalise negative externalities of a wage increase for low-productivity firms. We test this prediction using a linked employeremployee panel data set from the German mining and manufacturing sector. Consistent with our hypotheses, the empirical results suggest that under industry-level bargaining workers in more heterogeneous sectors receive lower wages than workers in more homogeneous sectors. In contrast, the degree of firm heterogeneity is found to have no negative impact on wages in uncovered firms and under firm-level contracts. --Wage-Setting Structure,Unions,Oligopoly,Linked Employer-Employee Data

What if Achilles and the tortoise were to bargain? An argument against interim agreements

Zeno's paradoxes of motion, which claim that moving from one point to another cannot be accomplished in finite time, seem to be of serious concern when moving towards an agreement is concerned. Parkinson's Law of Triviality implies that such an agreement cannot be reached in finite time. By explicitly modeling dynamic processes of reaching interim agreements and using arguments similar to Zeno's, we show that if utilities are von Neumann-Morgenstern, then no such process can bring about an agreement in finite time in linear bargaining problems. To extend this result for all bargaining problems, we characterize a particular path illustrated by \cite{ra}, and show that no agreement is reached along this path in finite time.Zeno's paradox, bargaining problems, interim agreements, vNM utility

Wage bargaining and the boundaries of the multinational firm

Do variations in labor market institutions across countries affect the cross-border organization of the firm? Using firm-level data on multinationals located in France, we show that firms are more likely to outsource the production of intermediate inputs to external suppliers when importing from countries with empowered unions. Moreover, this effect is stronger for firms operating in capital-intensive industries. We propose a theoretical mechanism that rationalizes these findings. The fragmentation of the value chain weakens the union's bargaining position, by limiting the amount of revenues that are subject to union extraction. The outsourcing strategy reduces the share of surplus that is appropriated by the union, which enhances the firm's incentives to invest. Since investment creates relatively more value in capital-intensive industries, increases in union power are more likely to be conducive to outsourcing in those industries. Overall, our findings suggest that multinational firms use their organizational structure strategically when sourcing intermediate inputs from unionized markets

Cooperation, Stability and Self-Enforcement in International Environmental Agreements: A Conceptual Discussion

In essence, any international environmental agreement (IEA) implies cooperation of a form or another. The paper seeks for logical foundations of this. It first deals with how the need for cooperation derives from the public good aspect of the externalities involved, as well as with where the source of cooperation lies in cooperative game theory. In either case, the quest for efficiency is claimed to be at the root of cooperation. Next, cooperation is considered from the point of view of stability. After recalling the two competing concepts of stability in use in the IEA literature, new insights on the nature of the gamma core in general are given as well as of the Chander-Tulkens solution within the gamma core. Free riding is also evaluated in relation with the alternative forms of stability under scrutiny. Finally, it is asked whether with the often mentioned virtue of “self enforcement” any conceptual gain is achieved, different from what is meant by efficiency and stability. A skeptical answer is offered, as a reply to Barrett’s (2003) attempt at giving the notion a specific content.International Environmental Agreements, Cooperation, Stability, Self-enforcement

Assessing the impact of political economy factors on rules of origin under NAFTA

Rules of origin are legitimate policy instruments to prevent trade deflection in a preferential trade agreement short of a customs union. Trade deflection takes place when a product imported into the preferential trade agreement through the member with the lowest external tariff is transhipped to a higher-tariff member, while yielding a benefit for the re-exporter. Yet, when captured by special interest groups, rules of origin can restrict trade beyond what is needed to prevent trade deflection. By how much do political economy factors account for the stringency of rules of origin? This study quantifies the impact of both determinants - those considered"justifiable"because they prevent trade deflection and those deemed to arise from"political economy"forces - on the restrictiveness of rules of origin under the North American Free Trade Agreement, approximated by a restrictiveness index. The main finding is that political economy forces, especially from the United States, raised significantly the restrictiveness of the rules of origin. Indeed, in industries where political-economy forces were strong prior to the North American Free Trade Agreement, as when the U.S. Most Favored Nation tariff was high or the revealed comparative advantage of Mexico (the United States) was strong (weak), more stringent rules of origin were introduced. Thus, stricter rules of origin are associated with higher production costs reducing the potential benefits of enhanced market access that is initially pursued by this type of agreement.Free Trade,Economic Theory&Research,Trade Policy,Trade Law,Debt Markets