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Layoff Costs and Efficiency with Asymmetric Information

  • Alain Delacroix

    (Centre interuniversitaire de recherche sur les politiques économiques et l'emploi (CIRPEE))

  • Etienne Wasmer

    (Département d'économie)

Wage determination under asymmetric information generates ine¢ ciencies due to excess turnover. Severance pay and layo¤ taxes can improve e¢ ciency. We show that inefficient separations can even be fully removed with xed separation taxes in the case where therelevant private information is exponentially distributed.

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Date of creation: 04 Sep 2009
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Handle: RePEc:spo:wpmain:info:hdl:2441/5l6uh8ogmqildh09h4823espg
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  1. Etienne Wasmer, 2006. "Interpreting Europe and US labor markets differences : the specificity of human capital investments," Sciences Po publications info:hdl:2441/8904, Sciences Po.
  2. Alain Delacroix & Etienne Wasmer, 2007. "Job and Workers Flows in Europe and the US: Specific Skills or Employment Protection?," Sciences Po publications info:hdl:2441/9938, Sciences Po.
  3. Alessandria, George & Delacroix, Alain, 2008. "Trade and the (dis)incentive to reform labor markets: The case of reform in the European Union," Journal of International Economics, Elsevier, vol. 75(1), pages 151-166, May.
  4. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  5. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  6. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  7. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Alvarez, Fernando & Veracierto, Marcelo, 2001. "Severance payments in an economy with frictions," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 477-498, June.
  9. Hall, Robert E & Lazear, Edward P, 1984. "The Excess Sensitivity of Layoffs and Quits to Demand," Journal of Labor Economics, University of Chicago Press, vol. 2(2), pages 233-57, April.
  10. Giulio Fella, 2004. "Optimal severance pay in a matching model," 2004 Meeting Papers 794, Society for Economic Dynamics.
  11. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  12. Veracierto, Marcelo, 2001. "Employment Flows, Capital Mobility, and Policy Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 571-95, August.
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