Dynamic contractual enforcement: A model of strikes

This gaper provides a theory of strikes as part of a constrained efficient enforcement mechanism for an implicit contractual agreement. A firm possess ing contemporaneously private information about demand engages in an enduri ng relationship with its workforce. If the information becomes perfectly ob servable subsequently, then, module discounting, the first-best is implemen table, but strikes are always off the equilibrium path. If the observations of the workforce are imperfect strikes occur in equilibrium. The dynamic c ontracting problem is modeled as a repeated game with imperfect monitoring. The equilibrium exhibits production inefficiency and incomplete insurance to mitigate the inefficiencies caused by strikes.