The Effects of Employment Protection on the Choice of Risky Projects
17 Pages Posted: 13 May 2002
Date Written: March 2002
We consider a firm that is subject to employment protection laws that limit the firm's ability to fire labor. In particular, we suppose that though a firm which shuts down can fire all its workers, it may fire no fewer. Compared to a firm that is subject to no employment protection, a firm constrained in firing will prefer a risk-free project over a risky one, but may prefer the riskier of two risky projects.
Keywords: Project Choice, Labor Protection
JEL Classification: M13, J23
Suggested Citation: Suggested Citation