SELF-ENFORCING UNION CONTRACTS - EFFICIENT INVESTMENT AND EMPLOYMENT

Baldwin (1983) asks whether a firm can credibly deter union opportunis m that would lead to underinvestment. We show that the punishments Bal dwin considers credible exclude tougher threats that only have the app earance of being self-destructive. If the firm's discount factor is su fficiently close to one, union opportunism can indeed be deterred. Mor eover, we show that given the firm's discount factor, a shorter lifeti me of capital does not necessarily promote efficiency. Although, as Ba ldwin emphasizes, it does enhance the firm's ability to punish union o pportunism, it also creates adverse incentives for the firm to engage in opportunistic employment cuts.