Bargaining and Walrasian Equilibrium in Simple Production Economies

Abstract

We consider a class of production economies in which there are two goods, leisure and a consumption good, and there are a large number of consumers and firms, modelled as continua. We formalize a bargaining procedure in the labor market, and examine the relation between the bargaining equilibria and the Walrasian equilibria of the underlying production economy. We show that every bargaining equilibrium allocation coincides with a Walrasian equilibrium allocation in the underlying economy. So, a Gale-type result is obtained for our production economies.