Downsizing with labor sharing and collusion

Authors / Editors

Research Areas

Publication Details

Output type: Journal article

Author list: Estache A, Laffont JJ, Zhang XZ

Publisher: Elsevier

Publication year: 2004

Journal: Journal of Development Economics (0304-3878)

Volume number: 73

Issue number: 2

Start page: 519

End page: 540

Number of pages: 22

ISSN: 0304-3878

Languages: English-Great Britain (EN-GB)

Unpaywall Data

Open access status: green

Full text URL: http://publications.ut-capitole.fr/16733/1/Laffont_16733.pdf

Abstract

In this paper we develop a model with adverse selection on the productive efficiency of workers in the private sector to analyze the downsizing problem in a public enterprise. Workers are distinguished by an inside productivity factor. Our result shows that reallocation of labor in the optimal downsizing mechanism depends on the comparative advantage of workers in public versus private production and on the size of asymmetric information. In particular, if information asymmetry is small, random downsizing mechanisms may become optimal. We also show that collusion between workers and the manager in charge of downsizing may induce more screening than in the absence of collusion if information asymmetry is large enough. Finally, we study how risk aversion of workers affects the optimal downsizing mechanism. (C) 2003 Elsevier B.V. All rights reserved.

Keywords

adverse selection, collusion, downsizing, risk aversion

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