Parente and Prescott's Theory May Work in Practice But Does Not Work in Theory

Contributions to Macroeconomics, Vol. 3, No. 1, Article 8, 2003

Posted: 21 Oct 2006

See all articles by Guido Cozzi

Guido Cozzi

Università degli Studi di Macerata - Department of Economics

Luis-Felipe Palacios

University of Pennsylvania, WRDS

Abstract

In this paper we challenge Parente and Prescott's (1999) theoretical framework, which establishes that unions use their control of "work practices" to thwart the efficient use of technology in the firms. We argue instead that unions, despite endowing monopoly rights over a technology, should tend to impose its efficient use. In fact if union members care about labor disutility, along with wage incomes, they will dictate "work practices" consistent with operating technology at full efficiency, in order to allow workers to enjoy more leisure. Our result is more general than Parent and Prescott's and does not rely on the particular specification of preferences.

Keywords: Trade Unions, Inefficiency, Technological Choice, Institutions and Growth

JEL Classification: J2, J3, J5

Suggested Citation

Cozzi, Guido and Palacios, Luis-Felipe, Parente and Prescott's Theory May Work in Practice But Does Not Work in Theory. Contributions to Macroeconomics, Vol. 3, No. 1, Article 8, 2003 , Available at SSRN: https://ssrn.com/abstract=938987

Guido Cozzi

Università degli Studi di Macerata - Department of Economics ( email )

Via Crescimbeni 20
Macerata 62100
Italy

Luis-Felipe Palacios (Contact Author)

University of Pennsylvania, WRDS ( email )

Philadelphia, PA 19104
United States

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