This paper examines the business cycle properties of business cycle models with search frictions and wage bargaining which rely not only on labor, but also on capital in the production function. In the presence of capital, the choice of bargaining framework matters, even under perfect competition and constant returns to scale. In particular, under individual bargaining, the welfare theorems do not hold, due to a hold-up effect in capital and a hiring externality, so that solving a planner's problem is not sufficient. I examine the business cycle properties of the decentralized model with individual bargaining under alternative calibration strategies
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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number
755.
Length: Date of creation: 03 Dec 2006 Date of revision: Handle: RePEc:red:sed006:755
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Find related papers by JEL classification: E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles J2 - Labor and Demographic Economics - - Demand and Supply of Labor J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
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