Voice and Bargaining Power

25 Pages Posted: 23 Mar 2006

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Research; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Hans H. Haller

Virginia Tech - Department of Economics

Date Written: February 2006

Abstract

We propose a formal concept of the power of voice in the context of a simple model where individuals form groups and trade in competitive markets. Individuals use outside options in two different ways. Actual outside options reflect the possibility to exit or to join other existing groups. Hypothetical outside options refer to hypothetical groups that are ultimately not formed. Articulation of hypothetical outside options in the bargaining process determines the relative bargaining power of the members of a group, which constitutes an instance of the power of voice. The adopted equilibrium concept endogenizes the outside options as well as the power of voice. In our illustrative example, there exists an equilibrium that uniquely determines the power of voice and the allocation of commodities.

Keywords: power of voice, competitive equilibria, group formation, bargaining, articulation of outside options

JEL Classification: D5, D13, D71

Suggested Citation

Gersbach, Hans and Haller, Hans H., Voice and Bargaining Power (February 2006). CESifo Working Paper Series No. 1668, Available at SSRN: https://ssrn.com/abstract=892728 or http://dx.doi.org/10.2139/ssrn.892728

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Research ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Hans H. Haller

Virginia Tech - Department of Economics ( email )

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