Present bias in the labor market – when it pays to be naive

Fahn, Matthias; Seibel, Regina

doi:10.1016/j.geb.2022.06.003

Cited by 4 publications

(3 citation statements)

References 34 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…More recently, commentators have resorted to laboratory experiments to better isolate the relative impact of the players' general impatience, present-bias, and awareness of their time-preferences [48,49]. 6 Fahn and Seibel show a similar result in the context of employment contracts between firms and naïve time-inconsistent employees [51]. 7 The instantaneous utility in a period depends on the rewards received and costs incurred in that period.…”

Section: Notesmentioning

confidence: 96%

Time-Inconsistent Bargaining and Cross-Commitments

Utset

2023

Games

View full text Add to dashboard Cite

The paper studies bargaining games involving players with present-biased preferences. The paper shows that the relative timing of bargaining rewards and bargaining costs will determine whether the players’ present-bias will affect bargaining outcomes. In cases where players agree to a bargain in period 1 and experience all bargaining payoffs in period 2, the players will act in a time-consistent fashion. When time-inconsistent players incur immediate bargaining costs to produce delayed rewards, they will have an incentive to procrastinate. On the other hand, when players receive immediate bargaining rewards and incur delayed costs, they will have incentives to agree to bargains too soon and to agree to inefficient bargains. The paper shows that the players’ awareness of their own and the other player’s present-biased preferences will determine whether they engage in repeated time-inconsistent bargaining. A naïve player who engages in time-inconsistent bargaining will suffer welfare losses. We show that time-inconsistent bargaining can also create spillover welfare losses for other players. A time-consistent player who is counterparty-naïve about the other player can suffer spillover welfare losses that can be higher than those incurred by the time-inconsistent player. As a result, counterparty-sophisticated players will have an incentive to use cross-commitment devices to reduce the likelihood of spillover welfare losses. The paper also shows that cross commitment devices that target immediate payoffs dominate cross-commitments that target delayed payoffs. Finally, the paper shows that time-inconsistent bargaining can lead to inefficient delays in agreeing to bargains and in exiting bargaining relationships.

show abstract

Section: Notesmentioning

confidence: 96%

Time-Inconsistent Bargaining and Cross-Commitments

Utset

2023

Games

View full text Add to dashboard Cite

show abstract

“…This finding suggests that present-biased employees can benefit from being naïve, too. While Fahn and Seibel (2022) focus on a setting where today's effort increases tomorrow's benefits, our paper shows that even with a static production technology, a dynamic compensation system can emerge as it allows firms to increase profits and to this end exploit naïve employees.…”

Section: Introductionmentioning

confidence: 96%

“…Finally, Fahn and Seibel (2022) also explore the role of commitment in employment relationship. They show that, if a firm is not able to commit to long-term contracts, naïve agents overestimate the extent of future wage reductions due to non-monetary benefits of employment, leading them to accept less reductions in the present.…”

Section: Introductionmentioning

confidence: 99%

When Protection Becomes Exploitation: The Impact of Firing Costs on Present-Biased Employees

Englmaier,

Fahn,

Schwarz

et al. 2023

SSRN Journal

Self Cite

View full text Add to dashboard Cite

Informal Incentives and Labour Markets

Fahn,

Murooka

2024

The Economic Journal

View full text Add to dashboard Cite

This paper investigates how labour-market tightness affects market outcomes if firms use informal, self-enforcing, agreements to motivate workers. We characterise profit-maximising equilibria and show that an increase in the supply of homogeneous workers can increase wages. Moreover, even though all workers are identical in terms of skills or productivity, profit-maximising discrimination equilibria exist. There, a group of majority workers is paid higher wages than a group of minority workers, who may even be completely excluded. Minimum wages can reduce such discrimination and increase employment. We discuss how these results relate to empirical evidence on downward wage rigidity, immigration, the gender pay gap, and credentialism.

show abstract

Present bias in the labor market – when it pays to be naive

Cited by 4 publications

References 34 publications

Time-Inconsistent Bargaining and Cross-Commitments

Time-Inconsistent Bargaining and Cross-Commitments

When Protection Becomes Exploitation: The Impact of Firing Costs on Present-Biased Employees

Informal Incentives and Labour Markets

Contact Info

Product

Resources

About