Termination of Dynamic Contracts in an Equilibrium Labor Market Model

I construct an equilibrium model of the labor market where workers and firms enter into dyamic contracts that can potentially last forever, but are subject to optimal terminations.� Upon a termination, the firm hires a new worker, and the worker who is terminated receives a termination compensation from the firm and is then free to go back to the labor market to seek new employment opportunities and enter into new dynamic contracts.� The model permits only two types of equilibrium terminations that resemble, respectively, the two typical kinds of labor market separations observed in practice: involuntary layoffs and voluntary retirements.� The model allows simultaneous determination of its equilibrium turnover, unemployment, and retirement, as well as the expected utility of the new labor market entrants.dynamic contract; termination; labor market equilibrium

Equilibrium Layoff As Termination of a Dynamic Contract

In a dynamic model of the labor market with moral hazard, equilibrium layoff is modeled as termination of an optimal long-term contract. Termination, together with compensation (current and future), is used as an incentive device to induce worker efforts. I then use the model to study analytically the effects of a firing tax on termination and worker compensation and utility. There are three layers to the impact of a firing tax on layoff and worker utility. A higher firing tax could either reduce aggregate termination and increase worker utility, or increase aggregate termination and reduce worker utility, depending on the structure of the environment.

On the receiver pays principle

This paper extends the theory of network competition between telecommunications operators by allowing receivers to derive a surplus from receiving calls (call externality) and to affect the volume of communications by hanging up (receiver sovereignty). We investigate the extent to which receiver charges can lead to an internalization of the calling externality. When the receiver charge and the termination (access) charge are both regulated, there exists an e±cient equilibrium. Effciency requires a termination discount. When reception charges are market determined, it is optimal for each operator to set the prices for emission and reception at their off-net costs. For an appropriately chosen termination charge, the symmetric equilibrium is again effcient. Lastly, we show that network-based price discrimination creates strong incentives for connectivity breakdowns, even between equal networks.Networks, interconnection, competition policy

Mobile termination, network externalities, and consumer expectations

We re-examine the literature on mobile termination in the presence of network externalities. Externalities arise when firms discriminate between on- and off-net calls or when subscription demand is elastic. This literature predicts that profit decreases and consumer surplus increases in termination charge in a neighborhood of termination cost. This creates a puzzle since in reality we see regulators worldwide pushing termination rates down while being opposed by network operators. We show that this puzzle is resolved when consumers' expectations are assumed passive but required to be fulfilled in equilibrium (as defined by Katz and Shapiro, AER 1985), instead of being rationally responsive to non-equilibrium prices, as assumed until now

The impact of the termination rule on cooperation in a prisoner's dilemma experiment

Cooperation in prisoner's dilemma games can usually be sustained only if the game has an infinite horizon. We analyze to what extent the theoretically crucial distinction of finite vs. infinite-horizon games is reflected in the outcomes of a prisoner's dilemma experiment. We compare three different experimental termination rules in four treatments: a known finite end, an unknown end, and two variants with a random termination rule (with a high and with a low continuation probability, where cooperation can occur in a subgame-perfect equilibrium only with the high probability). We find that the termination rules do not significantly affect average cooperation rates. Specifically, employing a random termination rule does not cause significantly more cooperation compared to a known finite horizon, and the continuation probability does not significantly affect average cooperation rates either. However, the termination rules may influence cooperation over time and end-game behavior. Further, the (expected) length of the game significantly increases cooperation rates. The results suggest that subjects may need at least some learning opportunities (like repetitions of the supergame) before significant backward induction arguments in finitely repeated game have force. --Prisoner's dilemma,Repeated games,Infinite-horizon games,Experimental economics

Equilibrium and Termination

We present a reduction of the Turing halting problem (in the simplified form of the Post correspondence problem) to the problem of whether a continuous-time Markov chain (CTMC) presented as a set of Kappa graph-rewriting rules has an equilibrium. It follows that the problem of whether a computable CTMC is dissipative (ie does not have an equilibrium) is undecidable.

Dynamic Bargaining with Transaction Costs

A buyer and seller alternate making offers until an offer is accepted or someone terminates negotiations. The seller's valuation is common knowledge, but the buyer's valuation is known only by the buyer. Impatience to reach an agreement comes from two sources: the traders discount future payoffs and there are transaction costs of bargaining. Equilibrium behavior involves either immediate trade, delayed trade, or immediate termination, depending on the size of the gains from trade and the relative bargaining costs. This contrasts with the pure discounting model where termination never occurs, and the pure transaction cost model where delayed trade never occurs.Bargaining; Negotiation; Delay; Signalling Games; Transaction Costs.

Network competition : empirical evidence on mobile termination rates and profitability

We analyze a model of multi firm competition between mobile network operators. The model assumes inelastic usage demand and full penetration, and allows for asymmetric termination rates, differences in marginal costs and vertical differentiation. A key property is that operators’ equilibrium profit is unaffected by an identical change in all termination rates in the market - we call this the profit neutrality hypothesis. The model is well suited for econometric implementation. We use a panel data set comprising north western European mobile operators to estimate equilibrium profit functions and find that we cannot reject the profit neutrality hypothesis. The results suggest that a reduction in mobile termination rate levels in mature markets will not necessarily benefit consumers

The augmented weak sharpness of solution sets in equilibrium problems

This study delves into equilibrium problems, focusing on the identification of finite solutions for feasible solution sequences. We introduce an innovative extension of the weak sharp minimum concept from convex programming to equilibrium problems, coining this as weak sharpness for solution sets. Recognizing situations where the solution set may not exhibit weak sharpness, we propose an augmented mapping approach to mitigate this limitation. The core of our research is the formulation of augmented weak sharpness for the solution set, a comprehensive concept that encapsulates both weak sharpness and strong non-degeneracy within feasible solution sequences. Crucially, we identify a necessary and sufficient condition for the finite termination of these sequences under the premise of augmented weak sharpness for the solution set in equilibrium problems. This condition significantly broadens the scope of existing literature, which often assumes the solution set to be weakly sharp or strongly non-degenerate, especially in the context of mathematical programming and variational inequality problems. Our findings not only shed light on the termination conditions in equilibrium problems but also introduce a less stringent sufficient condition for the finite termination of various optimization algorithms. This research, therefore, makes a substantial contribution to the field by enhancing our understanding of termination conditions in equilibrium problems and expanding the applicability of established theories to a wider range of optimization scenarios