IDEAS home Printed from https://ideas.repec.org/a/fep/journl/v2y1989i2p.html
   My bibliography  Save this article

A model of implicit contracts without precommitment on emloyment

Author

Listed:
  • Mikko Puhakka

    (Helsinki School of Economics)

Abstract

The purpose of this paper is to analyze an optimal one-period labor contract between one firm and one worker when there is no precommitment on employment. I assume, instead, that implementation is the responsibility of a third party (e.g. court of law) that observes only the wage rate and the state of nature. Under these informational assumptions the first-best contract is no longer attainable even though the state is publicly observed. It is demonstrated in this paper that (i) either the worker or the firm is rationed in every state of nature, except possibly in one state; (ii) the firm is rationed in low states; (iii) the contract stipulates the wage rate and the employment level to be increasing functions of the state whenever the firm is rationed.

Suggested Citation

  • Mikko Puhakka, 1989. "A model of implicit contracts without precommitment on emloyment," Finnish Economic Papers, Finnish Economic Association, vol. 2(2), pages 106-115, Autumn.
    • Handle: RePEc:fep:journl:v:2:y:1989:i:2:p:
    as

    Download full text from publisher

    File URL: http://www.taloustieteellinenyhdistys.fi/images/stories/fep/fep19892_2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. J. E. Spingarn & R. T. Rockafellar, 1979. "The Generic Nature of Optimality Conditions in Nonlinear Programming," Mathematics of Operations Research, INFORMS, vol. 4(4), pages 425-430, November.
    2. Oliver D. Hart, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(1), pages 3-35.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-1175, September.
    2. Renström, Thomas I. & Roszbach, Kasper, 1995. "Trade unions, employee share ownership and wage setting: A supply-side approach to the share economy," SSE/EFI Working Paper Series in Economics and Finance 65, Stockholm School of Economics.
    3. John W. Budd & Jozef Konings & Matthew J. Slaughter, 2005. "Wages and International Rent Sharing in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 73-84, February.
    4. Zivin, Joshua Graff & Just, Richard E. & Zilberman, David, 2005. "Risk Aversion, Liability Rules, and Safety," International Review of Law and Economics, Elsevier, vol. 25(4), pages 604-623, December.
    5. H. Schneider, 1983. "Mitbestimmung, unvollständige Information und Leistungsanreize: Überlegungen zu einer funktionsfähigen Unternehmensverfassung," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 119(III), pages 337-355, September.
    6. Rahma Daly & Marc-Arthur Diaye & Jean-Max Koskievic, 2014. "Workers’ Risk Attitude and Financial Participation," Documents de recherche 14-03, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    7. Finkle, Aaron, 2005. "Relying on information acquired by a principal," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 263-278, April.
    8. repec:eee:labchp:v:2:y:1986:i:c:p:789-848 is not listed on IDEAS
    9. A. D. Ioffe & R. E. Lucchetti & J. P. Revalski, 2004. "Almost Every Convex or Quadratic Programming Problem Is Well Posed," Mathematics of Operations Research, INFORMS, vol. 29(2), pages 369-382, May.
    10. Schultz, Christian, 1997. "Wages and employment in a repeated game with revenue fluctuations," European Economic Review, Elsevier, vol. 41(1), pages 147-162, January.
    11. Robert H. Topel & Finis Welch, 1986. "Efficient Labor Contracts with Employment Risk," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 490-507, Winter.
    12. Maria Rouziou, 2019. "The contingent value of pay inequalities in sales organizations: integrating literatures in economics, management, and psychology," AMS Review, Springer;Academy of Marketing Science, vol. 9(3), pages 184-204, December.
    13. Sandip Mitra & Dilip Mookherjee & Maximo Torero & Sujata Visaria, 2013. "Asymmetric Information and Middleman Margins: An Experiment with West Bengal Potato Farmers," Working Papers id:5545, eSocialSciences.
    14. Thomas, Jonathan & Worrall, Tim, 1990. "Income fluctuation and asymmetric information: An example of a repeated principal-agent problem," Journal of Economic Theory, Elsevier, vol. 51(2), pages 367-390, August.
    15. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133, Elsevier.
    16. Jae Hyoung Lee & Gue Myung Lee & Tiến-Sơn Phạm, 2018. "Genericity and Hölder Stability in Semi-Algebraic Variational Inequalities," Journal of Optimization Theory and Applications, Springer, vol. 178(1), pages 56-77, July.
    17. Gaudeul, Alexia, 2009. "A (micro) course in microeconomic theory for MSc students," MPRA Paper 15388, University Library of Munich, Germany.
    18. Volker Nocke & John Thanassoulis, 2014. "Vertical Relations Under Credit Constraints," Journal of the European Economic Association, European Economic Association, vol. 12(2), pages 337-367, April.
    19. Roger A. McCain, 1987. "Acceptable Contracts, Opportunism, and Rigid Hourly Wages," Eastern Economic Journal, Eastern Economic Association, vol. 13(3), pages 205-213, Jul-Sep.
    20. repec:eee:labchp:v:2:y:1986:i:c:p:1001-1035 is not listed on IDEAS
    21. Perry, Motty & Solon, Gary, 1985. "Wage Bargaining, Labor Turnover, and the Business Cycle: A Model with Asymmetric Information," Journal of Labor Economics, University of Chicago Press, vol. 3(4), pages 421-433, October.
    22. John W. Budd & Jozef Konings & Matthew J. Slaughter, "undated". "International Rent Sharing in Multinational Firms," Working Papers 0202, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fep:journl:v:2:y:1989:i:2:p:. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Editorial Secretary The email address of this maintainer does not seem to be valid anymore. Please ask Editorial Secretary to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/talouea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.