INFORMATION SHARING IN UNION-FIRM RELATIONSHIPS

Large firms often negotiate wage rates with labor unions. When they do, an ex ante agreement to share information should make it more likely that they will reach an agreement and capture the gains from trade. However, if the firm refuses to share information, the union may shade down its wage demand to increase the probability of acceptance. This reduction in the wage can increase the joint surplus of the agents and increase social welfare. As a result, there are some circumstances in which bargaining with incomplete information can be better for the agents and society than bargaining with complete information. Copyright © (2008) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.