BARGAINING AND THE TIMING OF INVESTMENT

The joint determination of the timing of investment and wage bargainin g is modelled. Two cases are considered: (a) There is an alternating-o ffer bargaining game over binding wage contracts and production is pos sible only when agreement is reached. (b) There are no binding contrac ts so revenue is divided in period-by-period bargaining post-investmen t. Investment can occur earlier in case (b) than in case (a) and the e quilibrium in case (b) can Pareto-dominate the equilibrium with bindin g contracts. These conclusions depend on players' discount factors.