Labor Market Information Acquisition and Downsizing
AbstractWe study the optimal mechanism for downsizing the public sector which takes into account different informational constraints (complete versus asymmetric information on each worker's efficiency) and political constraints (mandatory versus voluntary downsizing). Under complete information, the optimal structure of downsizing (who is laid-off and who is not) does not depend on the political constraint and is determined by the (marginal) cost of retaining a worker in the public sector. Since this cost includes his opportunity cost in the private sector, information acquisition on opportunity costs affects the structure of downsizing. Under asymmetric information, the political constraints determine which workers obtain information rents and therefore affect the structure of downsizing. An increase in the precision of the information on workers' opportunity costs may increase or decrease social welfare depending on its impacts on the information rents. Copyright � 2006 The Authors; Journal compilation � 2006 Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Development Economics.
Volume (Year): 10 (2006)
Issue (Month): 3 (08)
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Other versions of this item:
- Doh-Shin Jeon & Jean-Jacques Laffont, 2003. "Labour Market Information Acquisition and Downsizing," Working Papers 43, Barcelona Graduate School of Economics.
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