Mobility restrictions (e.g., severance payment, life-long tenure, and divorce ban) are widely observed. This paper is an attempt to understand why there are these restrictions. I present a model economy that features production teams and focuses on the search for partners and the formation and break-up of teams. Under no restrictions, there is too much searching and breaking-up because the individual decision problem ignores the loss of the deserted partner' utility. Arrangements such as break-up payment and break-up ban can improve welfare. Thus the paper rationalizes mobility restrictions as welfare-improving arrangements.
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Paper provided by Commission of the EEC - Ecofin, Country Studies in its series Papers with number
152.
Length: 20 pages Date of creation: 1999 Date of revision: Handle: RePEc:fth:eeccou:152
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