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Dynamic Contractual Enforcement: A Model of Strikes
Author(s) -
Robinson James A.
Publication year - 1999
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00012
Subject(s) - inefficiency , enforcement , imperfect , discounting , economics , microeconomics , private information retrieval , workforce , perfect information , general equilibrium theory , complete information , modulo , sequential equilibrium , repeated game , computer science , game theory , equilibrium selection , finance , mathematics , law , computer security , linguistics , philosophy , political science , economic growth , combinatorics
This paper provides a theory of strikes as part of a constrained efficient enforcement mechanism for an implicit contractual agreement. A firm possessing contemporaneously private information about demand engages in an enduring relationship with its workforce. If the information becomes perfectly observable subsequently, then, modulo discounting, the first‐best is implementable, but strikes are always off the equilibrium path. If the observations of the workforce are imperfect strikes occur in equilibrium. The dynamic contracting problem is modeled as a repeated game with imperfect monitoring. The equilibrium exhibits production inefficiency and incomplete insurance to mitigate the inefficiencies caused by strikes.