Abstract
In a model of strategic R&D competition between two firms that negotiate with independent unions we show that: (i) incomplete labour market contracts may Pareto-dominate complete labour market contracts; (ii) even when complete contracts Pareto-dominate incomplete contracts, economies can get stuck in the incomplete contract equilibrium. These conclusions provide additional strategic reasons why complete labour market contracts may not be used-even if they were feasible. We propose two testable predictions to discriminate between complete and incomplete contracts: (i) the variance of wages is lower with complete contracts; (ii) the variance of employment is higher under complete contracts.
Original language | English |
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Pages (from-to) | 265-282 |
Number of pages | 18 |
Journal | Scandinavian Journal of Economics |
Volume | 103 |
Issue number | 2 |
DOIs | |
Publication status | Published - Jun 2001 |
Keywords
- strategic innovation
- complete contracts
- incomplete contracts
- unions
- WAGES