Discussion paper

DP10794 Intra Firm Bargaining and Shapley Values

The paper revisits the problem of wage bargaining between a firm and multiple workers. We show that the Subgame Perfect Equilibrium of the extensive-form game proposed by Stole and Zwiebel (1996a) does not imply a profile of wages and profits that coincides with the Shapley values as claimed in their classic paper. We propose an alternative extensive-form bargaining game, the Rolodex Game, that follows a simple and realistic protocol and that, under some mild restrictions, admits a unique Subgame Perfect Equilibrium generating a profile of wages and profits that are equal to the Shapley values. The vast applied literature that refers to the Stole and Zwiebel game to give a game-theoretic foundation to the use of the Shapley values as the outcome of the bargain between a firm and multiple workers should instead refer to the Rolodex game.

£6.00
Citation

Gautier, P and G Menzio (eds) (2015), “DP10794 Intra Firm Bargaining and Shapley Values”, CEPR Press Discussion Paper No. 10794. https://cepr.org/publications/dp10794