Optimal Imperfect Commitments in a Negotiation with a Deadline

One major finding of the bargaining literature is that the more irrevocable a commitment is, the better for the committed player. One notable exception is Fershtman and Seidmann (1993) bilateral negotiation where the commitment not only does not improve the committed player's payoff but also it results in inefficient delays. In this paper we relax two assumptions of the bargaining literature related to the uncertainty and irrevocability of commitments. We allow players not only to possess imperfect commitments but also to choose the degree of imperfection of their commitment. When these assumptions are incorporated in Fershtman and Seidmann (1993)'s model, we obtain that, on the one hand, t…

Partially revocable commitments in a negotiation with a deadline

Abstract [Fershtman, C., Seidmann, D., 1993. Deadline effects and inefficient delay in bargaining with endogenous commitment. Journal of Economic Theory 60, 306–321] showed that the presence of an irrevocable endogenous commitment with a fixed deadline results in the so called deadline effect. In this paper we analyse the effects of partially revocable endogenous commitments of a seller in an infinite horizon negotiation in which a deadline can arise with positive probability. We obtain that when the commitment possesses a sufficiently large revocable part not only the inefficient delays disappear and an immediate agreement is reached but also the commitment has a value. On the other hand, …

Effective leadership in teams: a simple model

This article explores the determinants of effective leadership in a team of production. We obtain that for leadership to be effective, the leader must be at least as productive as the follower. In the case of a charismatic leader, we obtain that efficiency can be restored with a homogeneous team.

TEMPORARY CONTRACTS, EMPLOYMENT PROTECTION AND SKILL: AN APPLICATION TO SPAIN*

In this paper we explain the different conversion patterns of temporary contracts by the impact of employment protection in combination with differences in productivity between workers. We use longitudinal survey data from individuals to estimate a competing risks model with multispells for Spain. The model includes correlated unobserved determinants in the transition rates to deal with selectivity. We find that workers with higher levels of education have a stronger probability of finding a permanent job. In contrast, low-educated workers have a stronger probability of ending in unemployment or another temporary contract. Furthermore, we show the importance of employment protection in affe…

BARGAINING WITH COMMITMENT UNDER AN UNCERTAIN DEADLINE

We consider an infinite horizon bargaining game in which a deadline can arise with positive probability and where players possess an endogenous commitment device. We show that for any truncation of the game, the equilibrium agreement can only take place if the deadline arises within this finite horizon. Since the deadline is an uncertain event, the equilibrium exhibits agreements which are delayed with positive probability.

Crowding-out effect and sorting in competitive labour markets with motivated workers

ABSTRACTThis article makes a contribution to the economics literature by inducing proper self-selection into contracts based on workers’ motivation. The novelty of our results is that it points out the alternative potential role of the crowding-out effect to separate workers based on their motivation.

Employee Types and Endogenous Organizational Design

This discussion paper resulted in an article in the 'Journal of Economic Behavior & Organization' (2011). Volume 80, issue 3, pages 553-573. When managers are sufficiently guided by social preferences, incentive provision through an organizational mode based on informal implicit contracts may provide a cost-effective alternative to a more formal mode based on explicit contracts and monitoring. This paper reports the results from a laboratory experiment designed to test whether organizations make full effective use of the available preference types within their work force when drafting their organizational design. Our main finding is that they do not do so; although the importance of social …

The optimal degree of commitment in a negotiation with a deadline

This note explores the consequences of a player's freedom of choice over his degree of commitment for the bargaining outcome. In particular, we modify the nonstationary structure of Fershtman and Seidmann (1993)'s bargaining by allowing one player to possess imperfect commitments where the degree of commitment is chosen prior to the negotiation stage. We show that a player optimally chooses an intermediate degree of irrevocability provided the costs of increasing the degree of commitment are small enough. In this case, not only an immediate agreement is reached but also the commitment is effective.

Employee types and endogenous organizational design: an experiment

When managers are sufficiently guided by social preferences, incentive provision through an organizational mode based on informal implicit contracts may provide a cost-effective alternative to a more formal mode based on explicit contracts and active monitoring. This paper reports the results from a stylized laboratory experiment designed to test whether subjects in the role of firm owner rely on the social preferences of other (‘employee’) subjects with whom they are matched when choosing which payoff version of a simple trust game these employee subjects should play (‘the organizational mode’). Our main finding is that they do so, albeit in a different way than theory predicts. The import…

This paper analyses the effects of partially revocable endogenous commitments of a seller in a negotiation with a deadline. In particular, we examine when commitment is a source of strength, a source of inefficiency and when it does not affect the bargaining outcome at all. We show that when commitment possesses a minimum amount of irrevocability this crucially determines the bargaining outcome. In the bilateral bargaining case, commitment becomes a source of inefficiency since it causes a deadline effect. In the choice of partner framework, however, the deadline effect disappears and there is an immediate agreement and, moreover, commitment becomes a source of strength since it increases t…

Commitment and choice of partner in a negotiation with a deadline

This paper analyses the effects of partially revocable endogenous commitments of a seller in a negotiation with a deadline. In particular, we examine when commitment is a source of strength, a source of inefficiency and when it does not affect the bargaining outcome at all. We show that when commitment possesses a minimum amount of irrevocability this crucially determines the bargaining outcome. In the bilateral bargaining case, commitment becomes a source of inefficiency since it causes a deadline effect. In the choice of partner framework, however, the deadline effect disappears and there is an immediate agreement and, moreover, commitment becomes a source of strength since it increases t…

Temporary contracts, employment protection and skill: A simple model

Abstract We construct a theoretical labor market that incorporates skill differences across workers to identify under which conditions temporary contracts are a way to access to permanency. Firing costs and unemployment benefits increase the threshold productivity above which workers access to permanency.