Abstract
The standard shirking model of efficiency wages is essentially a continuous-time, repeated prisoners' dilemma game. Thus, to sustain an equilibrium with employment requires sufficient gains from future co-operation. Each division of these gains corresponds to some equilibrium. Efficiency wages correspond to employees receiving the gains. Bonds allow firms to receive them. In markets well informed about agents' pasts, employment is independent of the distribution of gains. But in anonymous markets with more workers than jobs, employment is highest in efficiency wage equilibria. Efficiency wages thus arise naturally as the unique efficient equilibrium without recourse to assumptions that limit bonding.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
