efficient bargaining model

Examples of efficient bargaining model in the following topics:

• A Brief Definition

  • Through collective bargaining, employers and employees negotiate the conditions of employment.
  • Different economic theories provide a number of models intended to explain some aspects of collective bargaining:
  • The right-to-manage model, developed by the British school during the 1980s (Nickell), views the labor union and the firm bargaining over the wage rate according to a typical Nash Bargaining Maximin.
  • The efficient bargaining model (McDonald and Solow, 1981) sees the union and the firm bargaining over both wages and employment (or, more realistically, hours of work).
  • Define the monopoly union model, the right-to-manage model, and the efficient bargaining model as theories of collective bargaining

• The Coase Theorem

  • The farmer has an incentive to bargain with the rancher to find a more efficient solution.
  • If it is more efficient to prevent cattle trampling a farmer's field by fencing in the farm, rather than fencing in the cattle, the outcome of the bargaining will be the fence around the farm.
  • In practice, transaction costs are rarely low enough to allow for efficient bargaining and hence the theorem is almost always inapplicable to economic reality.
  • This graph exemplifies how Coase's Theorem functions in a practical manner, underlining the effects of an externality in an economic model.
  • According to the Coase theorem, two private parties will be able to bargain with each other and find an efficient solution to an externality problem.

• Implications and Limitations of the Efficient Market Hypothesis

  • These errors in reasoning lead most investors to avoid value stocks and buy growth stocks at expensive prices, which allow those who reason correctly to profit from bargains in neglected value stocks and the excessive selling of growth stocks.
  • These bubbles are typically followed by an overreaction of frantic selling, allowing shrewd investors to buy stocks at bargain prices.
  • One could also argue that if the hypothesis is so weak, it should not be used in statistical models due to its lack of predictive behavior.
  • Any test of this proposition faces the joint hypothesis problem, where it is impossible to ever test for market efficiency, since to do so requires the use of a measuring stick against which abnormal returns are compared-- in other words, one cannot know if the market is efficient if one does not know if a model correctly stipulates the required rate of return.
  • Consequently, a situation arises where either the asset pricing model is incorrect or the market is inefficient, but one has no way of knowing which is the case.

• Types of Private Solutions

  • Private actors will sometimes effectively address externalities and reach efficient outcomes without government intervention.
  • The Coase theorem, which was developed by Ronald Coase, posits that two parties will be able to bargain with each other to reach an agreement that efficiently addresses externalities.
  • If the conditions are met, the bargaining parties are expected to reach an agreement where everyone is better off.
  • In practice, however, transaction costs do exist, and the bargaining process does not always run smoothly.

• Labor Unions

  • Labor unions provide members with the power of collective bargaining over and fight for workers rights.
  • Labor union's activism centers on collective bargaining over wages, benefits, and working conditions for their membership, and on representing their members in disputes with management over violations of contract provisions.
  • To join a traditional labor union, workers must either be given voluntary recognition from their employer or have a majority of workers in a bargaining unit vote for union representation.
  • Other forms of unionism include minority unionism, solidarity unionism, and the practices of organizations such as the Industrial Workers of the World, which do not always follow traditional organizational models.
  • To fight employer anti-union programs, unions are currently advocating new "card check" federal legislation that would require employers to bargain with a union if more than 50% of workers signed forms, or "cards," stating they wish to be represented by that union, rather than waiting 45 to 90 days for a federally-supervised a secret ballot election during which time employers can fire, harass and generally make life miserable for pro-union employees.

• Limitations of the Five-Forces View

  • According to Porter, the Five Forces model is best used at the broader level of an entire industry.
  • It has been noted that conclusions from the Five Forces model are highly debatable.
  • This is deliberate, as models are designed to spark discussion and underline key concerns.
  • However, false conclusions can be reached when models are taken as certain.
  • This diagram represents the components of Porter's Five Forces model: (1) threat of new entrants, (2) threat of established rivals, (3) threat of substitute products, (4) bargaining power of buyers, and (5) bargaining power of suppliers.

• Porter’s 5 forces and the analysis of competitors

  • Consequently, the firm can be seen as always bargaining with customers for the firm's potential profits.
  • The firm is in the strongest bargaining position when it understands its buyer's needs.
  • For example, a firm that has many competitors offering a similar product will have customers with significant bargaining power.
  • For this to be a powerful bargaining tool for the customer, the switch from one firm to another must be cost-efficient and easy.
  • If it is expensive or burdensome to switch products, customers will also lose bargaining power.

• The Idea of Economic Citizenship

  • In 1913, Henry Ford dramatically increased the efficiency of his factories by large-scale use of the moving assembly line, with each worker doing one simple task in the production of automobiles.
  • Emphasizing efficiency, Ford more than doubled wages (and cut working hours from nine a day to eight), attracting the best workers and sharply reducing labor turnover and absenteeism .
  • Ford's employees could and did buy his cars, and by cutting prices over and over he made the Model T cheap enough for millions of people to buy, in the U.S. and in every major country.
  • The basic fear was that large numbers of unskilled, low-paid workers would defeat the union's efforts to raise wages through collective bargaining.

• Porter's Five Forces

  • Bargaining power of buyers: The bargaining power of customers is also described as the market of outputs.
  • Bargaining power of suppliers: The bargaining power of suppliers is also described as the market of inputs.
  • Similar to power of buyers, this bargaining power relies on scarcity and basic economics of supply and demand.
  • Managers use the Five Forces model to help identify opportunities or evaluate decisions in the context of the environment.
  • This image illustrates the important factors within Porter's Five Forces model.

• Slave Labor

  • The gang system was much more efficient because it allowed continuous work at the same pace throughout the day, never letting up or slowing down.
  • Some slaves had specialized agricultural knowledge which they could use to bargain for better working conditions.
  • The slaves used this knowledge to bargain with the plantation owners to gain more control over their work.
  • The highly developed and knowledgeable skills concerning rice planting possessed by slaves led to their successful ability to use these skills as a bargaining chip in determining the length and conditions of their bondage in the Americas.