European Business Schools Librarian's Group

ESSEC Working Papers,
ESSEC Research Center, ESSEC Business School

No DR 07025: Multiple Equilibria in a Firing Game With Impartial Justice

Damien Besancenot () and Radu Vranceanu ()
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Damien Besancenot: Université Paris 13 and CEPN, Postal: 99 av. Jean-Baptiste Clément, 93430 VILLETANEUSE, FRANCE
Radu Vranceanu: ESSEC Business School, Postal: Avenue Bernard Hirsch - B.P. 50105, 95021 CERGY-PONTOISE Cedex , FRANCE,

Abstract: In many European countries, a majority of employees are hired under very protective labor contracts that restrict the ability of the employer to dismiss them. In particular, employees can take to courts the firm's layoff motive. This paper analyses the interaction between firms, employees and the labor judicial system specific to South European countries. If judges' error margin increases when the judicial system is subject to congestion, the game presents multiple equilibria which differ in the frequency of workers abusively fired for personal motives. Policy implications can be inferred.

Keywords: EPL; Labor judges; Firing costs; Layoff motive; Multiple equilibria

JEL-codes: J32; J53; K31

27 pages, November 2007

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