Agency Business Cycles / Mikhail Golosov, Guido Menzio.

Format:

Book

Author/Creator:

Golosov, Mikhail.

Contributor:

National Bureau of Economic Research.

Menzio, Guido.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21743.

NBER working paper series no. w21743

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

We propose a new business cycle theory. Firms need to randomize over firing or keeping workers who have performed poorly in the past, in order to give them an ex-ante incentive to exert effort. Firms have an incentive to coordinate the outcome of their randomizations, as coordination allows them to load the firing probability on states of the world in which it is costlier for workers to become unemployed and, hence, allows them to reduce overall agency costs. In the unique robust equilibrium, firms use a sunspot to coordinate the randomization outcomes and the economy experiences endogenous, stochastic aggregate fluctuations.

Notes:

Print version record

November 2015.