Employment protection reform in search economies

The design of employment protection legislation (EPL) is of particular importance in the European debate on the contours of labor market reform. In this article we appeal to an equilibrium unemployment model to investigate the virtues of EPL reform which reduces the red tape and legal costs associated with layos and introduces a U.S.-style experiencerating system, which we model as a combination of a layo tax and a payroll subsidy. The reform considered shows that it is possible to improve the eciency of employment protection policies without aecting the extent of worker protection on the labor market. These results are consistent with the conventional wisdom that experience rating is desirable, not only as an integral component of unemployment-compensation nance, as most studies acknowledge, but also as part and parcel of a virtuous EPL system.Search and Matching Models; Employment Protection; State-Contingent Layo Tax; Experience-Rating

Does Bargaining Matter in the Small Firm Matching Model?

In this article, we use a stylized model of the labor market to investigate the effects of three alternative and well-known bargaining solutions. We apply the Nash, the Egalitarian and the Kalai-Smorodinsky bargaining solutions in the small firm’s matching model of unemployment. To the best of our knowledge, this is the first attempt that has been made to implement and systematically compare these solutions in search-matching economies. Our results are twofold. First from the theoretical/methodological viewpoint, we extend a somewhat flexible search-matching economy to alternative bargaining solutions. In particular, we prove that the Egalitarian and the Kalai-Smorodinsky solutions are easily implementable and mathematically tractable within search-matching economies. Second, our results show that even though the traditional results of bargaining theory apply in this context, they are generally qualitatively different and quantitatively weaker than expected. This is of particular relevance in comparison with the results established in the earlier literature.search and matching models, bargaining theory, Nash, Egalitarian, Kalai-Smorodinsky

Employment Protection Reform in Search Economies

The design of employment protection legislation (EPL) is of particular importance in the European debate on the contours of labor market reform. In this article we appeal to an equilibrium unemployment model to investigate the virtues of EPL reform which reduces the red tape and legal costs associated with layoffs and introduces a U.S.-style experience- rating system, which we model as a combination of a layoff tax and a payroll subsidy. The reform considered shows that it is possible to improve the efficiency of employment protection policies without affecting the extent of worker protection on the labor market. These results are consistent with the conventional wisdom that experience rating is desirable, not only as an integral component of unemployment-compensation finance, as most studies acknowledge, but also as part and parcel of a virtuous EPL system.Search and Matching Models, Employment Protection, State-Contingent Layoff Tax, Experience-Rating

Does bargaining matter in the small firm's matching Mmodel?

In this article, the authors use a stylized model of the labor market to investigate the effects of three alternative and well-known bargaining solutions. They apply the Nash, the Egalitarian and the Kalai-Smorodinsky bargaining solutions in the small firm’s matching model of unemployment. To the best of their knowledge, this is the first attempt that has been made to implement and systematically compare these solutions in search matching economies. Their results are twofold. First from the theoretical/methodological viewpoint, they extend a somewhat flexible search matching economy to alternative bargaining solutions. In particular, they prove that the Egalitarian and the Kalai -Smorodinsky solutions are easily implementable and mathematically tractable within search-matching economies. Second, their results show that even though the traditional results of bargaining theory apply in this context, they are generally qualitatively different and quantitatively weaker than expected. This is of particular relevance in comparison with the results established in the earlier literature.Search and matching models; Bargaining theory; Nash; Egalitarian; Kalai-Smorodinsky

Employment protection reform in search economies

The design of the employment protection legislation (EPL) is of a particular acuity in the European debate on the contours of the EPL reform. In this article we used an equilibrium unemployment model to investigate the virtue of an EPL reform whose modality is a lessening in the red tape and legal costs associated with layoffs and the introduction of an U.S. like experience rating system modelled as a combination of a layoff tax and a payroll subsidy. The reform considered shows that it is possible to improve both the consistency and the efficiency of employment protection policies while leaving the workers' protection untouched on the labor market. These results are consistent with the conventional wisdom that experience rating is desirable, not only as a part of unemployment compensation finance as most studies acknowledge but also as part and parcel of a virtuous EPL syste

All over the map: a worldwide comparison of risk preferences

We obtain rich measurements of risk preferences for 2939 subjects across 30 countries, and use the data to paint a picture of the distribution of risk preferences across the globe using structural equation models. Reference dependence and likelihood-dependence are found to be important everywhere. Model parameters in non-Western countries differ systematically from those in Western countries, with poorer countries substantially more risk tolerant than rich countries on average. We qualify previous findings on gender effects and cognitive ability by showing how they mainly impact likelihood-dependence. We further add novel evidence on the correlation between risk preferences and study major. Whereas we confirm previous results on observable characteristics of subjects explaining little of overall preference heterogeneity, a few macroeconomic indicators can explain a considerable part of the between-country heterogeneity

Multi-levels bargaining and efficiency in search economies

In this note, we extend the traditional search and matching framework to take account of the different levels at which negotiations take place. We show that, in the absence of any distortion, sector-level bargaining ought to be less efficient than bargaining taking place at the other levels. It follows that the introduction of labor market policies as a combination of employment protection, hiring subsidy and payroll tax improves efficiency. This result suggests that the relationship between the level at which bargaining takes place and the labor market performance is far more conditional than most studies acknowledge

Monetary incentives in the loss domain and behavior toward risk: An experimental comparison of three reward schemes including real losses

International audienceIn the loss domain, both practical and ethical considerations rule out the systematic use of an incentive-compatible procedure involving real losses. The experimental study presented here aims at investigating whether some easier-to-implement procedure could be adequately used. For that purpose, the subjects' degree of risk aversion is compared across three payment conditions: a real-losses condition based on a random-lottery (incentive-compatible) system, which serves as a benchmark, and two challengers, namely a "losses-from-an-initial-endowment" procedure and a hypothetical-losses condition. As a by-product, our experimental design also allows us to investigate the impact of monetary incentives in the gain domain. The main result is twofold: no significant difference arises between the three payment conditions in the loss domain, while real and hypothetical choices significantly differ in the gain domain. Our results suggest that the use of monetary incentives may be more crucial in the gain domain than in the loss domain

Does bargaining matter in the small firm matching model?

In this article, we use a stylized model of the labor market to investigate the effects of three alternative and well-known bargaining solutions. We apply the Nash, the Egalitarian and the Kalai-Smorodinsky bargaining solutions in the small firm's matching model of unemployment. To the best of our knowledge, this is the first attempt that has been made to implement and systematically compare these solutions in search-matching economies. Our results are twofold. First from the theoretical/methodological viewpoint, we extend a somewhat flexible search-matching economy to alternative bargaining solutions. In particular, we prove that the Egalitarian and the Kalai-Smorodinsky solutions are easily implementable and mathematically tractable within search-matching economies. Second, our results show that even though the traditional results of bargaining theory apply in this context, they are generally qualitatively different and quantitatively weaker than expected. This is of particular relevance in comparison with the results established in the earlier literature

A Tractable Method to Measure Utility and Loss Aversion under Prospect Theory

This paper provides an efficient method to measure utility under prospect theory, the most important descriptive theory of decision under uncertainty today. Our method is based on the elicitation of certainty equivalents for two-outcome prospects, a common way to measure utility. We applied our method in an experiment and found that most subjects were risk averse for gains and risk seeking for losses but had concave utility both for gains and for losses. This finding illustrates empirically that risk seeking and concave utility can coincide under prospect theory, a result that was derived theoretically by Chateauneuf and Cohen (1994). Utility was steeper for losses than for gains, which is consistent with loss aversion. Utility did not depend on the probability used in the elicitation, which offers support for prospect theory