Edited by John T. Addison and Claus Schnabel
Peter Cramton and Joseph Tracy 1. Introduction Labour disputes are an intriguing feature of the landscape of industrialised economies. Economists have had a long-standing interest in formulating a framework for understanding and analysing labour disputes. The development of non-cooperative bargaining theory provided the tools for a theory of collective bargaining and labour disputes. A general aim of this theoretical development is to inform policy makers of the eﬃciency and equity eﬀects associated with diﬀerent labour laws and institutions that govern and shape the collective bargaining process. While this new literature is still evolving, it can already oﬀer many insights into the interplay between policy and the bargaining process. In this chapter, we will provide a sketch of this new collective bargaining theory and illustrate its ability to aid in policy analysis. We will also relate the predictions of the model to existing empirical ﬁndings in the literature.1 The collective bargaining process is complex and any model must of necessity involve many simplifying assumptions. Labour disputes likely arise from a wide range of causes. No model will adequately capture all of these forces. The aim of the researcher is to try and identify some of the central factors that shape the typical bargaining situation. Hicks (1932) concluded that strikes were largely the result of faulty negotiations. Ross (1948) stressed the divergent aims of the union leaders and the rank-andﬁle union members. Ashenfelter and Johnson (1969) formalised Ross’ political model of unions into a theory of strikes....
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