An examination of asymmetric information and the firm-labor bargaining relationship : an honors thesis [(HONRS 499)]

Abstract

This paper examines the process of the firm - labor bargaining relationship by concentrating primarily on the pervasive economic theory of asymmetric information. A fairly comprehensive explanation of asymmetric information is provided, along with a series of asymmetric information examples. Included in the discussion of asymmetric information are explanations of a few of its subtopics: moral hazard and adverse selection.Following the explanation of asymmetric information, a model of the firm - labor bargaining relationship is provided. Firms, labor unions, negotiations and their respective roles are highlighted.This model is then combined with the theory of asymmetric information to give a thorough explanation of the bargaining process and the intricacies of negotiations. The informational struggles which both the labor unions and firms experience receive particular attention. Next, an outline of the bargaining process is provided.Lastly, in a case study of the National Football League, the negotiations between the league and its players is examined. This model explores free agency and benefit negotiations undertaken by both parties in the NFL relationship as an application of asymmetric information.