September 2005

IZA DP No. 1762: The Choice of the Agenda in Labor Negotiations: Efficiency and Behavioral Considerations

revised version published as 'Efficiency and Behavioral Considerations in Labor Negotiations' in: Journal of Economic Psychology, 2010, 31 (4), 599-611.

The labor economics literature has shown that the "efficient bargaining" model, in which wage and employment are negotiated simultaneously, is less frequently used on unionized markets than the less efficient "right-to-manage" model, in which wage is determined via bargaining and employment determined subsequently and unilaterally by the firm. This paper reports an experiment in which the choice of the bargaining agenda is endogenous within a noncooperative game. We find that participants show a preference for decision authority and choose single-issue bargaining in most cases even though efficiency is lower than in multiissue bargaining. Furthermore, multi-issue bargaining induces unions to offer smaller payoff shares and leads to a higher conflict rate than in a single-issue bargaining.