Agency Business Cycles

Mikhail Golosov and Guido Menzio

No 21743, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D86 E24 E32 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
Note: EFG
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Agency business cycles (2020)
Working Paper: Agency Business Cycles (2016)
Working Paper: Agency Business Cycles (2015)
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