Browsing by Subject "Bayesian equilibrium"

Now showing 1 - 3 of 3

Open Access
Managerial defections, promotion criteria and firm growth
(Elsevier BV, 1999) Bac, M.; Saglam, I.
Junior managers' learning decisions and career expectations, promotion criteria, and parent firms' growth strategies are interdependent. We study this interdependence in a two-stage game where a junior manager invests in unobservable industry-specific learning in response to the firm's growth strategy. In the absence of a credible promotion criterion the firm is unable to insure itself fully against defections, growth is low and ex-post regrettable managerial promotions may occur. Higher growth relaxes promotion decisions and erodes managers' learning incentives, whereas lower growth generates the opposite effect but increases the likelihood of defections. (C) 1999 Elsevier Science B.V. All rights reserved.
Open Access
On the informational content of wage offers
(Wiley-Blackwell Publishing, Inc., 2002) Bac, M.
This paper studies screening and signaling roles of the offer wage and investigates its impact on matching efficiency. It develops a matching model of a large job market populated by observationally indistinguishable, heterogeneous firms and workers. Heterogeneity is introduced in the simplest way, by assuming two basic types of firms and workers, where one type has an advantage over the other: firms prefer good quality workers and workers prefer firms with better attributes, wages being equal. However, good quality workers are much more productive in firms with better attributes, hence efficiency requires firms and workers of the same type be matched. In the model, firms offer wages and workers make application decisions. This simple model generates a rich class of predictions in the form of perfect Bayesian equilibria, relating wage offers and matching efficiency to the distribution of unobservable characteristics: If the proportion of "good" firms to "bad" workers is large, perfect matching occurs through wage offers that do both signaling and screening. In another equilibrium, wages signal firm types but do only partial screening if the good worker population is sufficiently large. Both firm types offer the same wage in equilibrium if the market is predominantly populated by good workers and good firms. Other equilibria exhibit Gresham's Law in the job market: pessimistic workers and firms of the good type withdraw and take their outside options. The screening/signaling motive for wage offers thus has the potential of explaining a variety of wage patterns.
Open Access
To invest or screen efficiently: a potential conflict in relationships governed by incomplete contracts
(Elsevier BV, 2001) Bac, M.
We consider a dynamic trade relationship where quality is not contractible and potential sellers retain quality-relevant private information. We show that the presence of an investment technology to improve the incumbent seller's innate quality may impair the efficiency of the screening process. If the conflict is effective, the buyer has to induce an inefficient screening process or reduce the productivity of the investment technology. This conflict suggests that the hold-up problem may be more severe than predicted by models of incomplete contracts that assume complete information. © Elsevier Science B.V.