Economia Politica. Rivista di teoria e analisi Economia Politica. Rivista di teoria e analisi
Sommario non tecnico
One of the most interesting stream in the economic literature of the past two decades analyses the nature and origins of organisations. These papers allow to enrich the representation of an economy proposed by the standard theory by adding important elements of realism. Organisations are interpreted as complex subjects, distinct from the set of agents of which they are made up, within which the authority on issues not explicitly covered by agreements or contracts among agents is delegated to one or more agents. Most of the papers in this stream of research have been on the theory of the firm, where firms are shown to be efficient institutional arrangements to organise the productive activity when there are transaction costs in the use of the market.
Building a parallel with the theory of the firm, in this paper the Trade Union is described as an incomplete contract with delegation of the authority to a leader. In section two, we show the reasons why workers, aiming at an efficient organisational arrangement, may have to give up managing collectively their interests and delegate the authority to a leader.
We study how different delegation arrangements affect the outcome of wage bargaining within the framework of a simple model with threats of industrial actions adapted from Moene (1988). The model is introduced in section 3. In section 4 we analyse the equilibrium in the case when the Union leader is one of the workers, while in section 5 the case of a professional leader with full discretionary power is discussed and compared with the previous section's setting.
We show that workers may benefit from delegating the authority on wage bargaining to a professional Union leader, who does not need to bear directly the costs of industrial actions. Delegation allows the workers to make the threat of using the most effective industrial actions credible, even though those industrial actions are the most costly for the workers themselves. Hence, delegation solves the time-inconsistency of the threats of industrial actions to be undertaken whenever the bargaining process is interrupted, and so increases the bargaining power of the Union. In this respect, the relationship between Union's members and the professional leader is another example of strategic delegation.
In particular, we consider the choice between going on strike and working to rule. If working to rule is much less effective in damaging the firm and, at the same time, less costly for the workers than going on strike, a Union led by a professional will use going on strike as a credible threat, while a Union where workers bargain directly with the firm will use working to rule. Both the equilibrium wage and the number of employed workers will be higher in the former case than in the latter. Hence, delegation to a professional leader will be preferred by the Union members to the case when one of the workers bargain on behalf of all of them.
Furthermore, delegation to a professional leader is also the choice maximising total production surplus, since in equilibrium it corresponds to a larger number of employed workers. Therefore, there are cases when this organisational arrangement is both privately optimal for workers and desirable from a social welfare point of view.
Our analysis has important implications for the debate on the degree of democracy within the Trade Union. It shows that there is a trade-off between the effectiveness of the Union in bargaining and its members' direct participation to the decisional process. Therefore, according to our analysis, a tight law enforcement of democratic procedures within Unions could weaken their bargaining power and eventually damage the workers. On the other hand, the workers' right to self-determination within the Union seems to deserve an extensive protection. The decision on how far that protection has to go, should take into account the existence of such a trade-off.
merzoni@mi.unicatt.it
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