This paper models the wage-contract negotiation procedure between
a union and a firm as a sequential bargaining process in which the union
also decides, in each period, whether or not to strike for the duration of
that period. We show that there exist subgame-perfect equilibria in which
the union engages in several periods of strikes prior to reaching a final
agreement, although both parties are completely rational and fully informed.
This has implications for other inefficient phenomena such as tariff wars,
debt negotiations, and wars in general. We characterize the set of
equilibria, show that strikes can occur in real time, and discuss extensions
of the model such as lockouts and the possibility of multiple recontracting
opportunities.
*Published:
American Economic Review, March 1991.
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