Bilateral delegation in wage and employment bargaining in monopoly

- This paper models bilateral delegation in wage bargaining.
- Delegation causes the bargaining pie to shrink severely ruling out mutual gains.
- A player's payoff can be inversely related to his bargaining power.

We study efficiency and distributional implications of bilateral delegation in wage and employment bargaining in monopoly. Delegation causes underproduction, and the bargaining pie severely contracts rendering mutual gains from delegation impossible. With an increase in the union's bargaining power profit may perversely rise and the union's utility may fall.