Power or loss aversion? Reinterpreting the bargaining wage in search and matching models

We implement Shalev's (2002) theory of symmetric Nash bargaining under Prospect theory into the standard version of the Mortensen-Pissarides model and show that in this setting the bargained wage depends on the relative values of the players’loss aversion parameters. We also show that their ratio can be mapped to the worker’s power of an asymmetric Nash wage bargaining. As loss aversion parameters can be empirically investigated, this re-intrepretation may shed new light on some controversial issues of DGE-RBC models with search and matching frictions in the labor market.