Labour disputes,investment decisions and the judiciary |
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| Authors: | Bruno Deffains Yannick Gabuthy Eve-Angéline Lambert |
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| Affiliation: | 1. Center for Industrial and Business Organization, Dongbei University of Finance and Economics, 116025 Dalian, Liaoning, China;2. School of Management Science and Engineering, Dongbei University of Finance and Economics, 116025 Dalian, Liaoning, China;3. Business School, Chinese University of Hong Kong, Shatin, NT, Hong Kong;1. Radboud University, Institute for Management research, The Netherlands;2. University of Groningen, The Netherlands;3. University of Twente, The Netherlands |
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| Abstract: | In this article, we show that the presence of the judiciary in the background of labour relationships is not neutral within these relations: its potential intervention in case of an ex-post layoff and conflict over the severance payment can promote ex-ante efficient specific investment decisions. This ability to promote efficiency depends on the judiciary's aptitude to balance out the parties' ex-post bargaining powers. Interestingly one of the results shows that, if workers' bargaining power in wage negotiations is low, which implies that they expect low returns from continuing the relationships, an increase in the exogenous layoff probability should lead judges to be less lenient towards them. |
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