Intra Firm Bargaining and Shapley Values

Pieter Gautier, Guido Menzio and Bjoern Bruegemann

No 389, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: The paper revisits the problem of wage bargaining between a firm and multiple workers. We show that the Subgame Perfect Equilibrium of the extensive-form game proposed by Stole and Zwiebel (1996a) does not imply a profile of wages and profits that coincides with the Shapley values as claimed in their classic paper. We propose an alternative extensive-form bargaining game, the Rolodex Game, that follows a simple and realistic protocol and that, under some mild restrictions, admits a unique Subgame Perfect Equilibrium generating a profile of wages and profits that are equal to the Shapley values. The vast applied literature that refers to the Stole and Zwiebel game to give a game-theoretic foundation to the use of the Shapley values as the outcome of the bargain between a firm and multiple workers should instead refer to the Rolodex game.

Date: 2016
New Economics Papers: this item is included in nep-cse, nep-gth and nep-mic
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Related works:
Journal Article: Intra Firm Bargaining and Shapley Values (2019)
Working Paper: Intra Firm Bargaining and Shapley Values (2018)
Working Paper: Intra Firm Bargaining and Shapley Values (2015)
Working Paper: Intra Firm Bargaining and Shapley Values (2015)
Working Paper: Intra Firm Bargaining and Shapley Values (2015)
Working Paper: Intra Firm Bargaining and Shapley Values (2015)
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