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Bargaining and hold-up : the role of arbitration

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Gabuthy, Yannick and Muthoo, Abhinay (2018) Bargaining and hold-up : the role of arbitration. Working Paper. Coventry: University of Warwick. Department of Economics. Warwick economics research papers series (WERPS) (1173). (Unpublished)

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Official URL: https://warwick.ac.uk/fac/soc/economics/research/w...

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Abstract

This paper analyses arbitration as a surrogate for complete contracts. We embed this idea in a simple model of a long-term relationship between a firm and its workforce, in which they can make productive-enhancing, relationship- specific investments, and then negotiate over the division of the resultant sur- plus. It is shown that the mere presence of the arbitrator (in the background of negotiations) may enhance investment incentives ex-ante by minimising each party's ability to engage in hold-up behaviours ex-post. Furthermore, we highlight notably that the partners should optimally commit to call an arbi- trator ensuring a compromise by awarding a reasonable share of the surplus to the worker. Indeed, this type of arbitrator would harmonise the parties' bargaining powers and then weight their investment incentives optimally.

Item Type: Working or Discussion Paper (Working Paper)
Subjects: H Social Sciences > HD Industries. Land use. Labor
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Industrial relations, Arbitration, Industrial -- Mathematical models, Surplus (Economics), Productivity bargaining
Series Name: Warwick economics research papers series (WERPS)
Publisher: University of Warwick. Department of Economics
Place of Publication: Coventry
ISSN: 0083-7350
Official Date: 13 August 2018
Dates:
DateEvent
13 August 2018Published
Number: 1173
Number of Pages: 21
Institution: University of Warwick
Status: Not Peer Reviewed
Publication Status: Unpublished
Access rights to Published version: Open Access (Creative Commons)
Date of first compliant deposit: 12 March 2018
Date of first compliant Open Access: 12 March 2018

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