The exercise of insider power is frequently considered as a major cause of involuntary unemployment. The authors show that under standard assumptions--insiders are selfish and they need not fear the loss of their job--insider power does not cause unemployment but leads to the introduction of a...

Numerous experimental studies indicate that people tend to reciprocate favors and punish unfair behavior. It is hypothesized that these behavioral responses contribute to the enforcement of contracts and increase gains from trade. It turns out that, if only one side of the market has...