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Nash Equilibrium Efficiency Wage Distributions

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  • Albrecht, James W
  • Vroman, Susan B

Abstract

This paper extends the shirking model of efficiency wages by introducing worker heterogeneity with respect to the disutility of effort. Heterogeneity leads to a problem of adverse selection in addition to the moral hazard problem that is present in the original model. As a result of adverse selection, an equilibrium in which all firms offer the same efficiency wage cannot exist; rather, a continuously differentiable distribution of wages will be offered in equilibrium. The authors demonstrate this equilibrium by construction and derive it explicitly in the case of a uniform distribution of the effort aversion parameter. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Albrecht, James W & Vroman, Susan B, 1998. "Nash Equilibrium Efficiency Wage Distributions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 183-203, February.
  • Handle: RePEc:ier:iecrev:v:39:y:1998:i:1:p:183-203
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    Cited by:

    1. Lin, Chung-cheng & Yang, C.C., 2008. "The firm as a community explaining asymmetric behavior and downward rigidity of wages," Journal of Economic Behavior & Organization, Elsevier, vol. 68(2), pages 390-400, November.
    2. Bhaskar, V. & To, Ted, 2003. "Oligopsony and the distribution of wages," European Economic Review, Elsevier, vol. 47(2), pages 371-399, April.
    3. Strand, J., 1998. "Bargaining Versus Efficiency Wages in a Dynamic Labor Market: A Synthesis," Memorandum 22/1998, Oslo University, Department of Economics.
    4. Demiralp, Berna, 2011. "Occupational self-selection in a labor market with moral hazard," European Economic Review, Elsevier, vol. 55(4), pages 497-519, May.
    5. Canegallo, Claudia, 1999. "Funzionamento del mercato del lavoro in presenza di informazione asimmetrica. Una rassegna della letteratura," POLIS Working Papers 8, Institute of Public Policy and Public Choice - POLIS.
    6. Gaumont, Damien & Schindler, Martin & Wright, Randall, 2006. "Alternative theories of wage dispersion," European Economic Review, Elsevier, vol. 50(4), pages 831-848, May.
    7. Fishman, Arthur & Simhon, Avi, 2003. "Can Income Equality Increase Competitiveness?," Discussion Papers 14983, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
    8. Mark Pingle and Leigh Tesfatsion, 2001. "Unemployment Insurance and the Evolution of Worker-Employer\n Cooperation: Experiments with Real and Artificial Agents," Computing in Economics and Finance 2001 279, Society for Computational Economics.
    9. E. Galdon-Sanchez, Jose & Guell, Maia, 2003. "Dismissal conflicts and unemployment," European Economic Review, Elsevier, vol. 47(2), pages 323-335, April.
    10. Chung-cheng Lin & C.C. Yang, 2006. "The Firm as a Community Explaining Asymmetric Behavior and Downward Rigidity of Wages," IEAS Working Paper : academic research 06-A014, Institute of Economics, Academia Sinica, Taipei, Taiwan.

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