On the credibility of harassment in the insider—outsider model |
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Authors: | Robin Naylor |
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Affiliation: | Department of Economics, University of Warwick, Coventry CV4 7AL, UK |
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Abstract: | In a well-known version of the insider-outsider model, the decision by outsiders not to underbid follows from the threats made by insiders to harass new entrants, thereby raising the entrants' disutility of work. It has been argued, however, that the harassment threat is not credible, at least in the one-period case. In the current paper we explore this claim, concluding that the existence of a social convention, together with associated social pressure effects, provides a possible explanation of the credibility of the harassment threat. Moreover, we suggest that such a convention is likely to play a role even in a multi-period analysis. |
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Keywords: | JEL classification: J41 |
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