Bargaining and Hold-up: The Role of Arbitration

Yannick Gabuthy and Abhinay Muthoo
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Yannick Gabuthy: University of Lorraine, University of Strasbourg, CNRS, BETA, Nancy, France

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

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 surplus. 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 arbitrator 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.

JEL-codes: D74 J52 K41 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cdm, nep-cta, nep-gth and nep-mic
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https://warwick.ac.uk/fac/soc/economics/research/w ... werp_1173_muthoo.pdf

Related works:
Journal Article: Bargaining and hold-up: the role of arbitration (2019)
Working Paper: Bargaining and hold-up: the role of arbitration (2019)
Working Paper: Bargaining and Hold-up: The Role of Arbitration (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1173

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