Organizational Design and Technology Choice Under Intrafirm Bargaining

Organizational Design and Technology Choice Under Intrafirm Bargaining

By Jeffrey Zwiebel, Lars Stole
1994Working Paper No. 1325

We consider a wide number of applications of an intrafirm bargaining game within organizations where employees and the owner of a firm's assets engage in wage negotiations. Under our presumption that contracts cannot serve to bind employees to the organization, the resulting stable wage and profit profiles give rise to an objective function for the firm that places weight on intramarginal profits in an economically significant manner. We in turn employ this methodology to explore applications of organizational design, hiring and capital decisions, training and cross-training, the importance of labor and asset specificity, managerial hierarchies, the firm's preference for unionization, responses to competition, and internal capital budgeting.