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Severance pay and the accuracy of judgment

  • Kenji Azetsu

    ()

    (Graduate School of Economics, Kobe University)

  • Taro Kumagai

    ()

    (Graduate School of Economics, Kobe University)

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    We show that the severance pay scheme can serve as bond and improve the welfare. When the authority appropriately adjudges the worker's effort, the increase in a severance payment reduces the shirker''s expected benefit, so that the severance pay works as a bond, which is warranted by the authority.

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    File URL: http://www.accessecon.com/pubs/EB/2006/Volume10/EB-06J40001A.pdf
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    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 10 (2006)
    Issue (Month): 1 ()
    Pages: 1-7

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    Handle: RePEc:ebl:ecbull:eb-06j40001
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    1. José Enrique Galdón Sánchez & Maia Güell, 2001. "Dismissal conflicts and unemployment," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0105, Departamento de Economía - Universidad Pública de Navarra.
    2. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
    3. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
    4. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
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