Endogenous effort in a dynamic model of union-firm interaction

This paper studies the implications of union deviation by reducing effort in the context of a repeated game model. We fmd that a failure to account for the possibility of union deviation may lead to an overestimation of the possibility of cooperation. In contrast to the existing literature, we find that unions may reach the efficient outcome despite wage hikes because they work harder under cooperation. We also fmd that when effort is an endogenous variable, the cooperative wage is likely to be higher than otherwise. Finally, our model predicts that if the union alone deviates, effort will fall as the endgame approaches. However, wages could either rise or fall.