Individual Wage Bargaining and Business Cycles
This paper examines the business cycle properties of business cycle models with search frictions and wage bargaining which rely not only on labor, but also on capital in the production function. In the presence of capital, the choice of bargaining framework matters, even under perfect competition and constant returns to scale. In particular, under individual bargaining, the welfare theorems do not hold, due to a hold-up effect in capital and a hiring externality, so that solving a planner's problem is not sufficient. I examine the business cycle properties of the decentralized model with individual bargaining under alternative calibration strategies
|Date of creation:||03 Dec 2006|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
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