Dalmazzo, Alberto
(1998)
Technological and financial factors in models of wage determination.
PhD thesis, London School of Economics and Political Science.
Abstract
The present dissertation develops some theoretical models which analyze the impact on wages of the financial and technological choices operated by firms. Chapter I considers the effects of technological change on efficiency-wages. We adopt Kremer's (1993) "O-Ring" production function, where technical progress can be represented through a change in the number of tasks to be performed in production. More complex production processes imply higher wage levels and higher general equilibrium unemployment. The model is extended to analyze within-group wage dispersion. In Chapter II, we adopt an alternating-calls strategic bargaining model where the incentive to reach an early agreement does not rely on time-preferences, but on intrinsic decay in the cake's size. When outside options remain positive and constant over time and the interval between calls shrinks to zero, the solution to this game converges to the Nash-solution, where the outside options take the status quo positions. This result contrasts with Rubinstein (1982), where outside options can matter only as corner- solutions. The model is extended to consider the role of market factors on wage determination. Chapter III considers the strategic role of debt in wage negotiations. Since debt provides a "credible threat" in bargaining, the entrepreneur can increase her profits by borrowing. Debt, thus, constitutes a (partial) remedy to Grout's (1984) under-investment problem. Chapter IV extends the model developed in Chapter III to analyze the implications that strategic borrowing can have on technological sophistication. We show that debt may have positive effects not only on the quantity of investment, but also on the degree of sophistication of the chosen projects. Chapter V (with G. Marini) analyses the role of foreign debt in promoting investment in Less Developed Countries that are subject to political risks. We show that, when default can trigger trade sanctions, foreign debt reduces the negative effects of political uncertainty on capital accumulation. Chapter VI (with F.Bagliano) contrasts the explanation for mark-up countercyclicality offered by the "price-war" model of Rotemberg and Saloner (1986) with the alternative explanation, based on "liquidity constraints", proposed by Chevalier and Scharfstein (1996).
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