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Multiple Equilibria in a Firing Game With Impartial Justice

In many European countries, a majority of employees are hired under very protective labor contracts that restrict the ability of the employer to dismiss them. In particular, employees can take to courts the firm's layoff motive. This paper analyses the interaction between firms, employees and the labor judicial system specific to South European countries. If judges' error margin increases when the judicial system is subject to congestion, the game presents multiple equilibria which differ in the frequency of workers abusively fired for personal motives. Policy implications can be inferred.

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Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 07025.

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Length: 27 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:ebg:essewp:dr-07025
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ESSEC Research Center, BP 105, 95021 Cergy, France

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  1. Olivier L'Haridon & Franck Malherbet, 2008. "Employment Protection Reform in Search Economies," THEMA Working Papers 2008-26, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  2. Cahuc, Pierre & Postel-Vinay, Fabien, 2002. "Temporary jobs, employment protection and labor market performance," Labour Economics, Elsevier, vol. 9(1), pages 63-91, February.
  3. Gilat Levy, 2003. "Careerist judges," LSE Research Online Documents on Economics 3621, London School of Economics and Political Science, LSE Library.
  4. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  5. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
  6. Damien Besancenot & Radu Vranceanu, 2008. "Multiple equilibria in a firing game with impartial justice," CEPN Working Papers halshs-00203176, HAL.
  7. Kaplow, Louis & Shavell, Steven, 2002. "Economic analysis of law," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 25, pages 1661-1784 Elsevier.
  8. José Enrique Galdón Sánchez & Maia Güell, 2001. "Dismissal conflicts and unemployment," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0105, Departamento de Economía - Universidad Pública de Navarra.
  9. Olivier Blanchard & Jean Tirole, 2004. "Redesigning the Employment Protection System," De Economist, Springer, vol. 152(1), pages 1-20, 03.
  10. O Blanchard & A Landier, 2002. "The Perverse Effects of Partial Labour Market Reform: fixed--Term Contracts in France," Economic Journal, Royal Economic Society, vol. 112(480), pages F214-F244, June.
  11. Andrea Ichino & Michele Polo & Enrico Rettore, . "Are Judges Biased by Labor Market Conditions?," Working Papers 192, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  12. Edmund Phelps & Gylfi Zoega, 2001. "Structural booms," Economic Policy, CEPR;CES;MSH, vol. 16(32), pages 83-126, 04.
  13. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, December.
  14. Lars Ljungqvist, 2002. "How Do Lay--off Costs Affect Employment?," Economic Journal, Royal Economic Society, vol. 112(482), pages 829-853, October.
  15. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  16. Pierre Cahuc & Winfried Koeniger, 2007. "Feature: Employment Protection Legislation," Economic Journal, Royal Economic Society, vol. 117(521), pages 185-188, 06.
  17. Pierre Cahuc & Stéphane Carcillo, 2006. "Que peut-on attendre des Contrats Nouvelle Embauche ?," Revue Française d'Économie, Programme National Persée, vol. 21(1), pages 37-86.
  18. Giuseppe BERTOLA & Tito BOERI & Sandrine CAZES, 2000. "Employment protection in industrialized countries: The case for new indicators," International Labour Review, International Labour Organization, vol. 139(1), pages 57-72, 03.
  19. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
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