Does Bargaining Matter In The Small Firm Matching Model?
In this paper, the authors use a stylized model of the labor market to investigate the effects of three alternative and well-known bargaining solutions. They apply the Nash, the Egalitarian and the Kalai-Smorodinsky bargaining solutions in the small firm's matching model of unemployment. To the best of their knowledge, this is the first attempt that has been made to implement and systematically compare these solutions in search-matching economies. Their results are twofold. First from the theoretical/methodological viewpoint, they extend a somewhat flexible search-matching economy to alternative bargaining solutions. Second, their results show that even though the traditional results of bargaining theory apply in this context, they are generally qualitatively different and quantitatively weaker than expected.