Bilateral Delegation, Wage Bargaining, and Innovation

A firm undertakes workers' productivity improving R&D before negotiating wage with the union, where negotiation can take place between their incentivised delegates. Under bilateral delegation profit, R&D and productivity-wage gap all increase, whilst the union's utility decreases, along with the union's bargaining power. However, to secure wage gains from productivity improvements via greater R&D and to ensure Pareto improvement in payoffs, the union should refrain from its own delegation, while the firm delegates alone. This will indeed be the equilibrium outcome if the union can commit not to delegate and if its bargaining power is above a critical level.