Journal ArticleDOI
Self-Enforcing Wage Contracts
Jonathan Thomas,Timothy Worrall +1 more
TLDR
In this paper, the authors examine long-term wage contracts between a risk-neutral firm and a risk averse worker when both can costlessly renege and buy or sell labour at a random spot market wage.Abstract:
We examine long-term wage contracts between a risk-neutral firm and a risk-averse worker when both can costlessly renege and buy or sell labour at a random spot market wage. A self-enforcing contract is one in which neither party ever has an incentive to renege. In the optimum self-enforcing contract, wages are sticky: they are less variable than spot market wages and positively serially correlated. They are updated by a simple rule: around each spot wage is a time invariant interval, and the contract wage changes each period by the smallest amount necessary to bring it into the current interval.read more
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Book
Recursive Macroeconomic Theory
TL;DR: In this paper, an introduction to recursive methods for dynamic macroeconomics is presented, including standard applications such as asset pricing, and advanced material, including analyses of reputational mechanisms and contract design.
Book ChapterDOI
The theory of contracts
Oliver Hart,Bengt Holmstrom +1 more
TL;DR: The authors presented at the World Congress of the Econometric Society, Cambridge, Massachusetts, 1985, The authors, a paper that was later used at the International Journal of Mathematical Information.
Journal ArticleDOI
Employment Fluctuations with Equilibrium Wage Stickiness
TL;DR: This article developed a new model of the way that wage stickiness affects unemployment and showed that stickiness arises in an economic equilibrium and satisfies the condition that no worker-employer pair has an unexploited opportunity for mutual improvement.
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Relational Incentive Contracts
TL;DR: In this paper, the authors study the design of self-enforced relational contracts and show that optimal contracts often can take a simple stationary form, but that self-enforcement restricts promised compensation and affects incentive provision.
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Social interactions, local spillovers and unemployment
TL;DR: In this paper, a model that explicitly incorporates local interactions and allows agents to exchange information about job openings within their social networks is presented, where agents are more likely to be employed if their social contacts are also employed.
References
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Journal ArticleDOI
Implicit Contracts and Underemployment Equilibria
TL;DR: In this paper, the authors study an industry with demand uncertainty which prompts risk-neutral firms to act both as employers and as insurers of homogeneous, risk-averse laborers, and find that firms are more likely to specify full employment the more of the following conditions prevail.
Journal ArticleDOI
A Theory of Wage Dynamics
Milton Harris,Bengt Holmstrom +1 more
TL;DR: In this paper, a dynamic, equilibrium model of long term (implicit) labour contracts under incomplete but symmetric information is developed, where risk neutral firms learn, as do workers, about each worker's productivity by observing the worker's output over time.
Journal ArticleDOI
Wages and Employment under Uncertain Demand
TL;DR: In this paper, the authors examine some implications of two postulates for firms' wage and employment policies, namely that firms or stockholders have easier access to capital markets at lower costs or higher returns than do small investors, such as workers, and that there are important mobility and turnover costs incurred when a worker moves from one firm to another.
Journal ArticleDOI
On the differentiability of the value function in dynamic models of economics
Posted Content
Equilibrium Long-Term Labor Contracts
TL;DR: In this article, a two-period, single-good model is used to propose consistent notions of labor market equilibrium for long-term employment contracts both when labor is specialized and cannot move in the second period and when there is free mobility without costs.