The Role of Expectation in Job Search and Firm Size Effect on Wages

One of the most puzzling facts in economics is the firm size-wage effect. After controlling for the observable characteristics of workers (age, gender, education, residence etc.), firms (industry, occupation, work conditions etc.) and negotiation effect (unionization), one still finds that the sheer size of a firm increases the wage, contrary to the one-good one-price doctrine. We provide a simple dynamic game model of wage determination to give a new rationale to the firm size-wage effect. We think that the wages are not market clearing prices but strategies by firms. Firms choose wages to control workers' search behavior. The essential feature of the model is that a large firm's history of wages is observable to all the current and future workers, while a small firm is not visible and only its current offer is observable. Therefore a small firm is expected to be a myopic low-wage payer, and its workers search and quit often. A large firm can prevent search if it maintained a high wage throughout the past, thus making workers expect high future wages. In this way, the firm size determines the worker expectations of its future wages, which changes the quit rate and equilibrium wages. To give additional support to our theoretical result, we test a new aspect of firm size-wage effect. Since the effect on wage levels are extensively studied, we derive two main hypotheses on wage gains after job changes. (H1) The proportion of firms that are larger than the previous employer increases the wage gain. (H2) The size of the previous employer decreases the wage gain. The firm size distribution effect (H1) is a new test. We obtain supports for both. Thus we conclude that the wages are strategies and affected by how workers utilize the firm size information in changing jobs. (297 words.)

"Voluntarily Separable Prisoner's Dilemma with Reference Letters"

We consider voluntarily separable repeated Prisoner's Dilemma in which a pair of players meet randomly and repeatedly play Prisoner's Dilemma only by mutual agreement. Fujiwara-Greve and Okuno-Fujiwara (2007) consider the case that once a partnership is dissolved there is no information flow to other partnerships. We consider the case that players can issue a reference letter to the partner if they entered cooperation periods, but the content of a letter is not verifiable. We show that the sheer existence of a letter shortens the trust-building periods of new matches and thus improves efficiency in equilibrium.

Voluntarily Separable Repeated Prisoner’s Dilemma.

Abstract: In Fujiwara-Greve and Okuno-Fujiwara (2009), an evolutionary stability concept was defined by allowing mutations of any strategy. However, in human societies, not all strategies are likely to be tried out when a player considers what happens in the future. In this paper we introduce the "shared belief" of potential continuation strategies, generated and passed on in a society, and mutations are restricted only among best responses against the shared belief. We show that a myopic strategy becomes a part of a bimorphic equilibrium under a shared belief and contributes to a higher payoff than ordinary neutrally stable distributions'

"Social Norms and Voluntary Cooperations"(in Japanese)

Unlike the ordinary repeated games, in the real world, people can run away after cheating. In this paper we construct a social game, in which players can repeat Prisoners' Dilemma only if both players agree to continue the partnership. We investigate how a social sanction prevents moral hazard in such a voluntary relationship. We have three conclusions. First, it is possible to enforce voluntary long-term cooperation by trust-building. Second, the trust-building periods can be shortened under diverse strategy distributions. Third, if there is a reference letter system which conveys information that a partnership ended by an unavoidable cause, then the trust-building periods can be shortened as well.

Cooperation in Repeated Prisoner’s Dilemma with Outside Options

経済学 / EconomicsIn many repeated interactions, repetition is not guaranteed but instead must be agreed upon. We formulate a model of voluntary repetition by introducing outside　options to a repeated Prisoner’s Dilemma and investigate how the structure of outside options affects the sustainability of mutual cooperation. When the outside　option is deterministic and greater than the value of mutual defection, the lower bound of the discount factors that sustain repeated cooperation is greater than the　one for ordinary repeated Prisoner’s Dilemma, making cooperation more difficult. However,stochastic outside options with the same mean may reduce the lower　bound of discount factors as compared to the deterministic case. This is possible when the stochasticity of the options increases the value of the cooperation phase　more than the value of the punishment phase. Necessary and sufficient conditions for this positive effect are given under various option structures.JEL Classification Codes: C73http://www.grips.ac.jp/list/jp/facultyinfo/yasuda_yosuke

On Voluntary and Repeatable Partnerships under No Information Flow

Miyagawa, Robert Wilson, Henrich Greve, and seminar participants at FEMES 2001 for helpful discussions. Financia

On Stochastic Acceptance and Gradual Cooperation in Voluntarily Repeated Prisoners’ Dilemma with No Information Flow ∗ by

There has been an accumulation of research on voluntarily repeated prisoners ’ dilemma with no information flow. This paper provides a unified comparison of various systems to enforce cooperation, as the matching probability changes. In many cases, the loss of payoff by not being able to adjust actions until the next period turned out to be greater than the loss of payoff by not being able to adjust the acceptance probability. Therefore stochastic acceptance equilibria give higher payoffs than those of gradual cooperation equilibria. The cost associated with the discrete timing of decision making is a new observation that has not been noticed in ordinary repeated games