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Incomplete information bargaining and business cycles

Acemoglu, Daron (1992) Incomplete information bargaining and business cycles. CEP discussion paper (60). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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This paper presents a one-sided incomplete (asymmetric) information bargaining game in a dynamic general equilibrium framework. The model predicts business cycle movements in the economy with persistence mechanism arising from asymmetric information and search. The employment level is procyclical without the help of unusually high values of intertemporal elasticity of substitution, the real wage is procyclical but rigid. In addition, quits are procyclical and lay-offs countercyclical. Even if relevant information is revealed by the aggregate price level, the qualitative properties of the model do not change. The paper also discusses the efficiency issue. Firstly, contracts are shown to be more efficient than bargaining. Secondly, the decentralised equilibrium does not exploit the informational externalities that exist and the resulting sequence of equilibria are not only first-best inefficient but also second best inefficient.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 1992 Daron Acemoglu
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HD Industries. Land use. Labor
Date Deposited: 21 Aug 2008 10:43
Last Modified: 15 Sep 2023 22:39

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