On Incomplete Information and the Emergence of Trade Unions

Abstract

The paper addresses the problem of union formation as outcome of a bargaining process. While previous contributions stress the role of production technology, here we argue that information asymmetries have a role of their own in the emergence of unions. To this purpose we study a model where workers are less informed than their employers on individual productivity but firm performance is public information. The latter is valuable to them but they can exploit it in no other way than by facing the firm united. Unions are thus established with the aim to take advantage of information that is useless to their members if they bargain separately. JEL Classification Numbers: 026, 830

I wish to thank Michele Grillo and Fioravante Patrone for helpful comments. Financial support from the Italian Ministry of Education under the project “Models of Trade Unions — Theoretical Problems and Empirical Analysis” is gratefully acknowledged.