Sometimes shareholders are better off delegating to a CEO with different objectives than their own. A top manager motivated to share surpluses with workers can encourage union members to adopt efficient production methods. Bond covenants may constrain managers from acquiescing to union wage...

Several papers have argued that firms can hide profits from unions with hard debt commitments. Alternatively, here we argue that unions can manipulate the non-shirking constraint and win higher efficiency wages. By creating a culture of mistrust and an opposition to supervision ex ante, unions...