A Bayesian evaluation of an efficiency-wage model with indeterminacy

Bo Zhang, Wei Dai and Mark Weder

Applied Economics, 2020, vol. 52, issue 19, 2044-2055

Abstract: This paper provides a quantitative assessment of a general equilibrium economy with non-Walrasian labour markets. Indeterminacy in the economy does not require production externalities or increasing returns but it rests on replacing the labour supply curve by a no-shirking condition on the efficiency-wage labour markets. The model is estimated on U.S. data via full information Bayesian methods. The shirking model is capable of matching several stylized facts of the aggregate economy and the labour market. Data favour a version of the artificial economy that is characterized by determinacy.

Date: 2020
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DOI: 10.1080/00036846.2019.1682115

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