Agency Business Cycles

Guido Menzio and Mikhail Golosov

No 740, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We propose a new business cycle theory. Firms need to randomize over firing or keeping workers who have performed poorly in the past, in order to give them an ex-ante incentive to exert effort. Firms have an incentive to coordinate the outcome of their randomizations, as coordination allows them to load the firing probability on states of the world in which it is costlier for workers to become unemployed and, hence, allows them to reduce overall agency costs. In the unique robust equilibrium, firms use a sunspot to coordinate the randomization outcomes and the economy experiences endogenous, stochastic aggregate fluctuations.

Date: 2016
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-sog
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Related works:
Journal Article: Agency business cycles (2020)
Working Paper: Agency Business Cycles (2015)
Working Paper: Agency Business Cycles (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:740

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