Codetermination, Collective Bargaining, Commitment, and Sequential Games: Comment

Abstract

Codetermination and collective bargaining are distinguished, according to McCain, by the existence of certain management prerogatives in the latter. These create first mover advantages (Schelling 1960), which explains why capital favors collective bargaining over codetermination. Furthermore, these first mover advantages create inefficiencies of the prisoners’ dilemma type: management will take into account that its decisions, regarding investment projects, for instance, might improve the bargaining position of labor and will be exploited by labor accordingly. These positional shifts might lead to socially inefficient decisions, that is, to Pareto inferior outcomes. Although repeated negotiations might lead to implicit or explicit cooperative agreements avoiding these inefficiencies, collective bargaining is vulnerable in this sense, and codetermination is more favourable to cooperative solutions since bargaining involves all alternatives from the outset here, and prerogatives leading to those prisoners’ dilemma type of inefficiencies are absent.