Answer to Question #156903 in Macroeconomics for john

Question

Wage Bargaining: Reconsider the wage bargaining game from class, where pilots outside option so is private information, and United believes that it is uniformly dis- tributed on 0,10). As in class, assume that United makes a take-it-or-leave-it wage offers to the pilots. If the pilots reject the offer, United goes bankrupt. (a) Calculate the optimal offers for profits (before salaries) 7 = 16. Are there any mutually beneficial trades that do nor occur in equilibrium? (b) Calculate the optimal offer s for profits (before salaries) 7 = 20. Are there any mutually beneficial trades that do nor occur in equilibrium? Discuss.

Answer 1

(a) The optimal offers for profits (before salaries) should be between 0 and 10, but we need additional information to find the exact amount. There may be mutually beneficial trades that do nor occur in equilibrium.(b) The optimal offers for profits (before salaries) should be between 0 and 10, but we need additional information to find the exact amount. There may be mutually beneficial trades that do nor occur in equilibrium.