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Asymmetric Information, Bargaining, and Unemployment Fluctuations


  • Acemoglu, Daron


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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    References listed on IDEAS

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    8. van Damme, Eric, 1989. "Stable equilibria and forward induction," Journal of Economic Theory, Elsevier, vol. 48(2), pages 476-496, August.
    9. MacLeod, W Bentley & Malcomson, James M, 1989. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Econometrica, Econometric Society, vol. 57(2), pages 447-480, March.
    10. Lorne Carmichael, 1983. "Firm-Specific Human Capital and Promotion Ladders," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 251-258, Spring.
    11. Fudenberg, Drew & Maskin, Eric, 1990. "Evolution and Cooperation in Noisy Repeated Games," American Economic Review, American Economic Association, vol. 80(2), pages 274-279, May.
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    13. Carmichael, H Lorne, 1989. "Self-Enforcing Contracts, Shirking, and Life Cycle Incentives," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 65-83, Fall.
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    16. 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.
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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. 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.
    3. Stevens, Philip Andrew, 2007. "Skill shortages and firms' employment behaviour," Labour Economics, Elsevier, vol. 14(2), pages 231-249, April.
    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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