Wage Bargaining, Uncertainty and the Behaviour of Excess Returns

Research output: Contribution to journalArticlepeer-review

Abstract

Bargaining theory explains delay in reaching wage agreements as the result of informational asymmetries. The conclusion of negotiations lessens these asymmetries, thus reducing the uncertainty of the uninformed parties. This paper analyzes whether this reduction in uncertainty is reflected in a reduction in the variance of the firm's excess returns. Some writers have treated this as a testable prediction of bargaining theories based on private information. The paper shows that it is the source of the variance that matters, not the informational asymmetry. If the firm's revenue is subject to publicly observable shocks, the proposition is generally false. Copyright 1994 by Blackwell Publishers Ltd and The Victoria University of Manchester
Original languageEnglish
Pages (from-to)353-373
Number of pages21
JournalManchester School
Volume62
Issue number4
DOIs
Publication statusPublished - Dec 1994

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