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Labour Market Information Acquisition and Downsizing

  • Doh-Shin Jeon
  • Jean-Jacques Laffont

We study the optimal mechanism for downsizing the public sector which takes into account different informational constraints (complete versus asymmetric information on each workers efficiency) and political constraints (mandatory versus voluntary downsizing). Under complete information, the optimal structure of downsizing (who is laid-off and who is not) does not depend on the political constraint and is determined by the (marginal) cost of retaining a worker in the public sector. Since this cost includes his opportunity cost in the private sector, information acquisition on opportunity costs affects the structure of downsizing. Under asymmetric information, the political constraints determine which workers obtain information rents and therefore affect the structure of downsizing. An increase in the precision of the information on workers' opportunity costs may increase or decrease social welfare depending on its impacts on the information rents.

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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 43.

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Date of creation: Sep 2003
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Handle: RePEc:bge:wpaper:43
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  1. Mathias Dewatripont, 1992. "Economic Reform and Dynamic Political Constraints," ULB Institutional Repository 2013/175991, ULB -- Universite Libre de Bruxelles.
  2. Antonio Estache & Jean-Jacques Laffont & Xinzhu Zhang, 2004. "Downsizing with labor sharing and collusion?," ULB Institutional Repository 2013/13374, ULB -- Universite Libre de Bruxelles.
  3. Chong, Alberto & Lopez-de-Silanes, Florencio, 2002. "Privatization and labor force restructuring around the world," Policy Research Working Paper Series 2884, The World Bank.
  4. Jullien, Bruno, 1997. "Participation Constraints in Adverse Selection Models," IDEI Working Papers 67, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Alderman, Harold & Canagarajah, Sudharshan & Younger, Stephen, 1995. "A Comparison of Ghanaian Civil Servants' Earnings before and after Retrenchment," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 4(2), pages 259-88, October.
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