Labor Conflicts and Inefficiency of Relationship-Specific Investments: What is the Judge's Role?
Posted: 27 Feb 2007
Date Written: 2007
Abstract
This paper presents a model of litigation in the context of a labor contract. The main objective of our analysis is to determine whether and under which conditions it is efficient that the judiciary arbiters a labor conflict and how the judge's decision should be made in order to be optimal. We embed this idea by considering a relationship between an employer and his worker, in which they can make (non contractible) relationship-specific investments. The optimality here refers to the best investment incentives of the parties allowing to maximize the generated surplus. We derive conclusions about the judge's behavior giving right investment incentives and determine how the division of the surplus should vary depending on several economic and social parameters.
Keywords: Labor Law, Litigation, Investment Incentives, Bargaining
JEL Classification: C78, K31, K41
Suggested Citation: Suggested Citation