Introducing asymmetric information in the credible bargain

In this paper, we introduce the asymmetric information a la Kennan in the Hall-Milgrom framework so as to replicate the elasticity of the real wage with respect to labor productivity found by Hagedorn-Manovskii (0.5). We believe that the empirical real wage stickiness results from the rigidity of the two bounds of the bargaining set. The Hall-Milgrom model, by only making the lower bound less flexible, does not generate enough wage rigidity. At the same time, the Kennan’s asymmetric information implies a less pro-cyclical upper bound. In introducing this imperfection in the Hall-Migrom framework, we make the two bounds of the bargaining set less flexible and find a real wage-labor productivity elasticity very closed to Hagedorn-Manovkii. Hence, our simple story provides an empirically realistic explanation of the real wage rigidity which is completely based on the bargaining theory.