This paper models the wage-contract negotiation procedure between a union and a firm as a sequential bargaining process in which the union also decides, in each period, whether or not to strike for the duration of that period. We show that there exist subgame-perfect equilibria in which the union engages in several periods of strikes prior to reaching a final agreement, although both parties are completely rational and fully informed. This has implications for other inefficient phenomena such as tariff wars, debt negotiations, and wars in general. We characterize the set of equilibria, show that strikes can occur in real time, and discuss extensions of the model such as lockouts and the possibility of multiple recontracting opportunities.

A speaker wishes to persuade a listener to accept a certain request. The conditions under which the request is justified, from the listener's point of view, depend on the values of two aspects. The values of the aspects are known only to the speaker and the listener can check the value of at most one. A mechanism specifies a set of messages that the speaker can send and a rule that determines the listener's response, namely, which aspect he checks and whether he accepts or rejects the speaker's request. We study mechanisms that maximize the probability that the listener accepts the request when it is justified and rejects the request when it is unjustified, given that the speaker maximizes the probability that his request is accepted. We show that a simple optimal mechanism exists and can be found by solving a linear programming problem in which the set of constraints is derived from what we call the L-principle. Copyright The Econometric Society 2004.

Health plans paid by capitation have an incentive to distort the quality of services they offer to attract profitable and to deter unprofitable enrollees. We characterize plans' rationing as a "shadow price" on access to various areas of care and show how the profit maximizing shadow price depends on the dispersion in health costs, individuals' forecasts of their health costs, the correlation between use in different illness categories, and the risk adjustment system used for payment. These factors are combined in an empirically implementable index that can be used to identify the services that will be most distorted by selection incentives.

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