study optimal regulation in a model in which wages are determined endogenously by wage bargaining at the firm level …. Compared to the case in which wages do not depend on the regime under which the firm is regulated, allowing for endogenously … determined wages has ambiguous effects on the regulatory contract. …

We introduce strategic wage bargaining in a search equilibrium model. We find that wages respond more an employment and … output less to aggreagte shoks than when wages are determined by conventional Nash bargaining. Expectations about the stocks … increase the volatility of wages even more. …