Risk and Unraveling in Labor Markets

Olivier Bos and Martin Ranger

MPRA Paper from University Library of Munich, Germany

Abstract: A two period labor market is considered in which workers’ quality is revealed in the second period. A signal – revealed to either workers, firms or both at the beginning of the first period – is correlated with the final quality. Under all assumptions about the distribution of information in the first period there exists an equilibrium in which firms only make offers in the second period and workers accept no offer in the first period. Nonetheless, early contracting is also an equilibrium if certain conditions on preferences of firms and workers are met. Workers have to be risk averse or firms risk loving with respect to expectations appropriate to the relevant information structure. Thus the conditions for unraveling depend on the information available to the two sides of the market.

Keywords: Unraveling; Risk Aversion; Asymmetric Information (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
Date: 2016-08-31
New Economics Papers: this item is included in nep-gth and nep-mic
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Related works:
Journal Article: Risk and Unraveling in Labor Markets (2018)
Working Paper: Risk and Unraveling in Labor Markets (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:74785

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