Wage Bargaining and Employment Revisited: Separability and Efficiency in Collective Bargaining
We analyse the two-dimensional Nash bargaining solution (NBS) by deploying
the standard labour market negotiations model of McDonald and Solow (1981).
We show that the two-dimensional bargaining problem can be decomposed into two
one-dimensional problems, such that the two solutions together replicate the solution
of the two-dimensional problem if the NBS is applied. The axiom of
Independence of Irrelevant Alternatives is shown to be crucial for this type
of decomposability. This result has significant implications for actual
negotiations because it allows for the decomposition of a multi-dimensional bargaining
problem into one-dimensional problems---and thus helps to facilitate real-world
negotiations.
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403-440
Wiley