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Severance pay and the accuracy of judgment

Author

Listed:
  • Kenji Azetsu

    () (Graduate School of Economics, Kobe University)

  • Taro Kumagai

    () (Graduate School of Economics, Kobe University)

Abstract

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.

Suggested Citation

  • Kenji Azetsu & Taro Kumagai, 2006. "Severance pay and the accuracy of judgment," Economics Bulletin, AccessEcon, vol. 10(1), pages 1-7.
  • Handle: RePEc:ebl:ecbull:eb-06j40001
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    File URL: http://www.accessecon.com/pubs/EB/2006/Volume10/EB-06J40001A.pdf
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    References listed on IDEAS

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    1. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    2. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    3. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
    4. E. Galdon-Sanchez, Jose & Guell, Maia, 2003. "Dismissal conflicts and unemployment," European Economic Review, Elsevier, vol. 47(2), pages 323-335, April.
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    Citations

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    Cited by:

    1. Baumann, Florian & Friehe, Tim, 2012. "On the evasion of employment protection legislation," Labour Economics, Elsevier, vol. 19(1), pages 9-17.
    2. Florian Baumann, 2010. "Severance Payments as a Commitment Device," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(4), pages 715-734, December.

    More about this item

    JEL classification:

    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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