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Asymmetric Information, Bargaining, and Unemployment Fluctuations

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  • Acemoglu, Daron

Abstract

The author constructs a dynamic general equilibrium model where wages are determined by bilateral bargaining and the firm has superior information. The asymmetry of information introduces unemployment fluctuations and dynamic wage sluggishness. Because the information of the firm only is revealed gradually, wages fall slowly in response to a negative shock and unemployment exhibits additional persistence. It is shown that high job destruction will generally be followed by a period of higher than average job destruction, that the presence of common shocks introduces an informational externality, and that bargaining is an inefficient method of wage determination compared to implicit contracts. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Acemoglu, Daron, 1995. "Asymmetric Information, Bargaining, and Unemployment Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 1003-1024, November.
  • Handle: RePEc:ier:iecrev:v:36:y:1995:i:4:p:1003-24
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    Cited by:

    1. Stupnytska, Yuliia, 2015. "Asymmetric information in a search model with social contacts," Center for Mathematical Economics Working Papers 548, Center for Mathematical Economics, Bielefeld University.
    2. Stevens, Philip Andrew, 2007. "Skill shortages and firms' employment behaviour," Labour Economics, Elsevier, vol. 14(2), pages 231-249, April.
    3. Croitoru, Lucian, 2011. "Three Unemployment Rates Relevant To Monetary Policy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 213-238, September.
    4. Ruiz-VerdĂș, Pablo, 2002. "Employer behavior when workers can unionize," DEE - Working Papers. Business Economics. WB wb020803, Universidad Carlos III de Madrid. Departamento de EconomĂ­a de la Empresa.

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