 Incomplete Information Bargaining and Business CyclesSTICERD - Theoretical Economics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE Abstract: This paper presents a one-sided incomplete (asymmetric) information bargaining game between a firm and a worker embedded in a general equilibrium framework. The model predicts business cycle fluctuations in the economy in response to changes in aggregate productivity. The employment level in the model exhibits considerable fluctuations and persistence without the help of high values of the intertemporal elasticity of substitution and the real wage rate, although procyclical, fluctuates less than the marginal prodcut of labour. The forces leading to persistent fluctuations are seach and incomplete information. The latter effect is due to the dynamic nature of bargaining which makes the revelation of information gradual, thus spreading the effect of an adverse shock over a number of periods by inducing 'dynamic wage slugishness' and persistent job destruction. The paper also discusses efficiency issues: contracts are shown to be more efficient than bargaining for the purpose of wage determination. Secondly, the decentralised equilibrium does not exploit the informational externalities that exist in this economy and is inefficient in a second-best sense. Date: 1993-03 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cep:stitep:259 Access Statistics for this paper More papers in STICERD - Theoretical Economics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE |
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