LONG-TERM UNION-FIRM CONTRACTS

We explore the possibility for self-enforcing long-term contracts between a risk averse union and a risk neutral firm, when these have the option to strike an efficient bargian at every stage, and the state of the world is variable. It is shown that any long-term efficient wage agreement satisfying individual rationality constraints involves a more even income stream to the workers (except for the case when the discount rate is high) and can be implemented by a Subgame-perfect equilibrium (by the threat of returning to short-term bargaining). Moreover, any such constrained efficient agreement can be supported by the threat of triggering agreements which themselves are constrained efficient, i.e., it can be implemented by a Renegotiation-proof equilibrium. © 1991 Springer-Verlag.