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Multiple equilibria in a firing game with impartial justice

Author

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  • Damien Besancenot

    (CEPN - Centre d'Economie de l'Université Paris Nord (ancienne affiliation) - UP13 - Université Paris 13 - CNRS - Centre National de la Recherche Scientifique)

  • Radu Vranceanu

    (ESSEC Business School)

Abstract

In many European countries, a majority of employees are hired under very protective labor contracts thatrestrict the ability of the employer to dismiss them. In particular, employees can take to courts the firm'slayoff motive. Given the high costs specific to so-called economic motives and judges' limited ability toprocess an ever growing flow of cases, in the last few years firms have been tempted to invoke faked personalmotives for firing "good" workers. This paper shows that the interaction between firms, employees andthe labor judicial system is consistent with multiple equilibria. Hence firing costs depend not only onvariables under the control of the government, but also on the nature of the equilibrium. Policies aimingat increasing flexibility, interpreted as a reduction in firing costs, should consider the possibility of shiftingfrom a high to a low firing costs equilibrium.

Suggested Citation

  • Damien Besancenot & Radu Vranceanu, 2008. "Multiple equilibria in a firing game with impartial justice," Working Papers halshs-00203176, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00203176
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00203176
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    References listed on IDEAS

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    Cited by:

    1. Besancenot, Damien & Vranceanu, Radu, 2009. "Multiple equilibria in a firing game with impartial justice," Labour Economics, Elsevier, vol. 16(3), pages 262-271, June.
    2. Cahuc, Pierre & Malherbet, Franck & Prat, Julien, 2019. "The Detrimental Effect of Job Protection on Employment: Evidence from France," IZA Discussion Papers 12384, Institute of Labor Economics (IZA).
    3. Besancenot Damien & Faria João R. & Huynh Kim V., 2014. "Congestion of Academic Journals Under Papers’ Imperfect Selection," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(3), pages 1145-1167, July.
    4. repec:got:cegedp:87 is not listed on IDEAS
    5. Baumann, Florian & Friehe, Tim, 2012. "On the evasion of employment protection legislation," Labour Economics, Elsevier, vol. 19(1), pages 9-17.
    6. Damien Besancenot & Joao R. Faria & Kim Van Huynh, 2009. "Congestion in academic journals under an impartial selection process," CEPN Working Papers halshs-00382585, HAL.
    7. Goerke, Laszlo & Pannenberg, Markus, 2010. "An economic analysis of dismissal legislation: Determinants of severance pay in West Germany," International Review of Law and Economics, Elsevier, vol. 30(1), pages 71-85, March.
    8. Damien Besancenot & Nicolas Sirven & Radu Vranceanu, 2018. "A model of hospital congestion in developing countries," Working Papers hal-01791106, HAL.
    9. Fraisse, H. & Kramarz, F. & Prost, C., 2009. "Labor Court Inputs, Judicial Cases Outcomes and Labor Flows: Identifying Real EPL," Working papers 256, Banque de France.

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    More about this item

    Keywords

    Multiple equilibria.; Labor judges; Firing costs; Layoff motive; Multiple equilibria;
    All these keywords.

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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