Overtime pay premiums in a unionized oligopoly

This paper studies how a high overtime wage rate and a low labor stock may be used as commitment devices by price-setting firms. We show that high overtime pay premiums may both decrease and increase equilibrium employment. If an employment-oriented union or the firm itself sets the overtime wage, then the overtime wage premium will be high enough to ensure that no overtime is used in equilibrium. If the overtime wage is set by a sufficiently wage-oriented union, however, overtime will be used in equilibrium, and employment is substantially lower. Thus the authorities may be able to increase employment if it can make a union act in a less wage-oriented manner. We show that this can be done by setting a minimum overtime pay premium. Minimum wage regulation could have the opposite effect.Overtime; Bertrand competition; unionization; regulation

Coalition formation and strategic permit trade under the Kyoto Protocol

This paper discusses coalition formation with side payments in markets for transferable property rights where strategic agents prevail on both sides of the market. Our concern is emissions permit trading under the Kyoto Protocol. While a seller cartel is not profitable, our analysis indicates that coalitions between sellers and buyers pay off. Three stable cartels are found. None involve all agents, yet they all induce overall e¢ ciency. To support a stable coalition, the EU, Japan and Canada may pay together between 0 and 13 billion US dollars per year to Russia. The permit price and society-wide emission reductions are nil.Emissions trading; Kyoto Protocol; cartel formation; merger profitability.

International Trade, Union Wage Premia, and Welfare in General Equilibrium

We study how two distinct forms of globalisation, trade cost reductions and opening up of trade in previously shielded sectors, affect sector-specific wages, employment levels and aggregate welfare in a two-country model of general oligopolistic equilibrium (GOLE) with partly unionised labour markets. We find that both forms of globalisation increase union coverage, and they also lead to a lower union wage premium in shielded sectors. In contrast, the union wage premium in open sectors and aggregate welfare are affected differently by the two types of globalisation. Trade cost reductions in open sectors always lead to higher union wage premia and to lower aggregate welfare, while an increased number of open sectors lowers the union wage premium, and it may also increase welfare.globalisation, unions, non-traded goods, general oligopolistic equilibrium

Structural Adjustment and Endogenous Worker Recall Probabilities

In this paper we investigate the incentives of unemployed workers to wait for a recall when recall probabilities are endogenously determined by the waiting decisions of others. Because of a positive externality that arises when workers seek new employment, an excessive number of workers choose to wait for a recall, and structural adjustment is slow. We also find that a small reduction in the unemployment benefits, or introducing a small cash bonus for workers that get a new job, may have no e.ect on unemployment in some cases, while eradicating significant levels of unemployment in other cases. Our analysis suggests that the government may face a Samaritan’s Dilemma if it can influence the recall probability of workers, and that multiple equilibria may exist in a game involving both workers and an unemployment-averse government. Furthermore, we explore a link to the war of attrition literature, showing that the Bulow and Klemperer (1999) ”one too many”-result may not hold if there is uncertainty concerning when the game ends.structural adjustment,unemployment, recalls, search, war of attrition.

International Trade, Union Wage Premia,and Welfare in General Equilibrium

We study how two distinct forms of globalisation, trade cost reductions and opening up of trade in previously shielded sectors, affect sector-specific wages, employment levels and aggregate welfare in a two-country model of general oligopolistic equilibrium (GOLE) with partly unionised labour markets. We find that both forms of globalisation increase union coverage, and they also lead to a lower union wage premium in shielded sectors. In contrast, wage premium in open sectors and aggregate welfare are affected differently by the two types of globalisation. Trade cost reductions in open sectors always lead to higher union wage premia and to lower aggregate welfare, while an increased number of open sectors lowers the union wage premium, and it may also increase welfare.Globalisation; Unions; Non-traded Goods; General Oligopolistic Equilibrium

International trade, union wage premia, and welfare in general equilibrium

We study how two distinct forms of globalisation, trade cost reductions and opening up of trade in previously shielded sectors, affect sector-specific wages, employment levels and aggregate welfare in a two-country model of general oligopolistic equilibrium (GOLE) with partly unionised labour markets. We find that both forms of globalisation increase union coverage, and they also lead to a lower union wage premium in shielded sectors. In contrast, the union wage premium in open sectors and aggregate welfare are affected differently by the two types of globalisation. Trade cost reductions in open sectors always lead to higher union wage premia and to lower aggregate welfare, while an increased number of open sectors lowers the union wage premium, and it may also increase welfare. --Globalisation,Unions,Non-traded Goods,General Oligopolistic Equilibrium

Structural adjustment and endogenous worker recall probabilities

In this paper we investigate the incentives of unemployed workers to wait for a recall when recall probabilities are endogenously determined by the waiting decisions of others. Because of a positive externality that arise when workers seek new employment, an excessive number of workers choose to wait for a recall, and structural adjustment is slow. We also find that a small reduction in the unemployment benefits, or introducing a small cash bonus for workers that get a new job, may have no effect on unemployment in some cases, while eradicating significant levels of unemployment in other cases. Our analysis suggests that the government my face a Samaritan’s Dilemma if it can influence the recall probability of workers, and that multiple equilibria may exist in a game involving both workers and an unemployment-averse government. Furthermore, we explore a link to the war of attrition literature, showing that the Bulow and Klemperer (1999) ”one too many”-result may not hold if there is uncertainty concerning when the game ends.Structural adjustment; unemployment; recalls; search; war of attrition.

Outsourcing in Contests

We study ex post outsourcing of production in an imperfectly discriminating contest, interpreted here as a research tournament or a procurement contest for being awarded some production contract. We find that the possibility of outsourcing increases competition between the contestants, leading to higher total contest effort, unless there are very few contestants and/or the ex-post bargaining strength of the contest winner is sufficiently low. However, even in the case of two contestants, outsourcing reduces the procurement costs of inducing a given level of effort if the contest organizer can collect entry fees. With respect to contest design, this suggests that outsourcing should generally be allowed if the objective is to induce stronger competition.Contests; Outsourcing; Bargaining; Contest design

Outsourcing in Contests

We study ex post outsourcing of production in an imperfectly discriminating contest, interpreted here as a research tournament or a procurement contest for being awarded some production contract. We find that the possibility of outsourcing increases competition between the contestants, leading to higher total contest effort, unless the ex-post bargaining strength of the contest winner is sufficiently low and/or there are very few contestants. However, even in the case of two contestants, outsourcing reduces the procurement costs of inducing a given level of effort if the contest organizer can collect entry fees. With respect to contest design, this suggests that outsourcing should generally be allowed if the objective is to induce stronger competition.contests, outsourcing, bargaining, contest design

Unionized Oligopoly, Trade Liberalization and Location Choice

In a two-country reciprocal dumping model, with one country unionized, we analyze how wage setting and firm location are influenced by trade liberalization. We show that trade liberalization can induce FDI, which is at odds with conventional theoretical wisdom and cannot happen in a corresponding model without unionization. FDI is undertaken partly to win a distributional battle with unionized labor, and the incentives to invest abroad can be too large seen from a welfare point of view.unionized oligopoly, economic integration, foreign direct investment