Search Friction and Job Destruction under Decreasing Marginal Return Technology

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This paper considers the role of job destruction in a job search model where firms have decreasing marginal return technology and workers are heterogeneous. Because the bargaining solution developed by Stole and Zwiebel (1996a) and Smith (1999) is employed, firms have an incentive to overemploy workers so as to reduce the workers' bargaining position. This creates a discrepancy between the two efficiency conditions: namely, job creation and job destruction. Consequently, any equilibrium is unable to attain an efficient allocation when heterogeneous workers exist within a firm.

JSPS (Grant-in-Aid for Scientific Research (C) 19530224)

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