Bargaining over a Menu of Wage Contracts

The authors investigate an infinite horizon bargaining problem in which a firm and a worker bargain over two dimensions: quality and wage. The worker has private information about his type. Only the uninformed firm makes an offer and it can offer a menu of quality-age contracts instead of a single one. They show that for all discount factors, the unique sequential equilibrium outcome is separating without delay; the firm separates the types of worker with a menu of contracts in the first period. The authors result shows that in multidimensional bargaining, the 'Coase Conjecture' holds in the sense that the game ends in the first period. But it fails in the sense that the uninformed party can preserve the entire bargaining power.