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The Structure of Multi-Period Employment Contracts with Incomplete Insurance Markets

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  • Richard Arnott

Abstract

This paper examines the structure of multi-period employment contracts in an economy with identical workers when only incomplete insurance is provided against job-related contingencies, stemming from asymmetric information. The employment contract provides implicit insurance by paying workers less than their marginal product during some periods and more during others. The paper explores how contracts are altered by increases in uncertainty, worker risk aversion, hiring costs, and the amount of specific and general training provided.

Suggested Citation

  • Richard Arnott, 1980. "The Structure of Multi-Period Employment Contracts with Incomplete Insurance Markets," Working Paper 395, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:395
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    References listed on IDEAS

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    1. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 629-649.
    2. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," NBER Chapters, in: Investment in Human Beings, pages 9-49, National Bureau of Economic Research, Inc.
    3. Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, vol. 8(3), pages 337-360, July.
    4. Richard Arnott, 1978. "The Control of Labor Turnover with Incomplete Insurance Markets: The One-Group Case," Working Paper 292, Economics Department, Queen's University.
    5. Spence, Michael & Zeckhauser, Richard, 1971. "Insurance, Information, and Individual Action," American Economic Review, American Economic Association, vol. 61(2), pages 380-387, May.
    6. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-139, May.
    7. Parsons, Donald O, 1972. "Specific Human Capital: An Application to Quit Rates and Layoff Rates," Journal of Political Economy, University of Chicago Press, vol. 80(6), pages 1120-1143, Nov.-Dec..
    8. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
    9. David Donaldson & B. Curtis Eaton, 1976. "Firm-Specific Human Capital: A Shared Investment or Optimal Entrapment?," Canadian Journal of Economics, Canadian Economics Association, vol. 9(3), pages 462-472, August.
    10. Mark V. Pauly, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 88(1), pages 44-62.
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    Cited by:

    1. Lam, Kit-Chun & Liu, Pak-Wai & Wong, Yue-Chim, 1995. "Wage structure when wage offers are private," Labour Economics, Elsevier, vol. 2(1), pages 19-32, March.

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