Short-Run Production Uncertainty and the Theory of the Firm : The Impact of Union-Firm Bargaining

The paper analyses the consequence of introducing (decentralized) union-firm bargaining in the theory of the firm under uncertainty. Contrary to earlier beliefs that short-run output does not change with additive uncertainty, it is shown that risk preference may matter when union-firm bargaining is introduced Comparative statics between risk-averse (or risk-loving) and unions are revealed to depend on the respective power of the fixation of both wage and employment.