Timing of environmental technological choice and trade unions' climate solidarity

Abstract

We consider a Cournot duopoly consisting of two geographically separated firms, each associated with a local environmental-friendly trade union that exhibits climate solidarity. In the basic model, firms choose abatement technologies prior to bargaining over wages and employment with the unions. We show that wage demanded is decreasing as the union's degree of climate solidarity increases, providing additional incentives for firms to adopt greener technology, hence improving the social welfare. In the alternative model, where trade unions decide the wages prior to the firms' abatement and employment decisions, the firms choose the dirtiest available technology implying that the union's climate solidarity has no effect on the firm's abatement decisions. These results suggest that establishing climate solidarity as a norm across trade unions can, depending on the timing of the environmental technological choice, become a powerful instrument in battling climate change, critically supplementing the as yet ineffective international policy framework.