Agency Business Cycles

Mikhail Golosov and Guido Menzio

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

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.

Keywords: Unemployment; Moral Hazard; Endogenous Business Cycles (search for similar items in EconPapers)
JEL-codes: D86 E24 E32 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2015-11-01, Revised 2015-11-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://economics.sas.upenn.edu/sites/default/files/filevault/15-038.pdf (application/pdf)

Related works:
Journal Article: Agency business cycles (2020)
Working Paper: Agency Business Cycles (2016)
Working Paper: Agency Business Cycles (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:15-038

Access Statistics for this paper

More papers in PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 133 South 36th Street, Philadelphia, PA 19104. Contact information at EDIRC.
Bibliographic data for series maintained by Administrator ().