Efficient bargaining, welfare and strategic export policy

Abstract

We present an efficient bargaining model and analyse the welfare effects of unionization, where rival exporting governments employ strategic export policy. The domestic firm is unionized and conducts a Nash bargain with its union to determine wage and employment. The union may be wage oriented, wage neutral or employment oriented. The foreign firm is non-unionized. Stability of the reaction function equilibrium in policy space is sufficient for the following results: (i) domestic welfare increases with the degree of wage orientation; (ii) an increase in the union's bargaining power leads to higher (lower) domestic welfare if the union is wage (employment) oriented; (iii) if the domestic social marginal cost of labour is less than or equal to the foreign marginal cost, domestic market share is higher under wage orientation.

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