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Work Effort and Contract Length

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  • Cantor, Richard M

Abstract

Contracts of deterministic duration are derived as solutions to a moral hazard problem in a framework that extends E. Fama's (1980) single-period labor contracts model by introducing recontracting costs and long-term contracts. A worker can be induced to put forth unobservable effort if he knows that his wages in future contracts will be related to his past overall productivity. As contract length is increased, the worker is more likely to shirk because the present value of future wage revisions associated with shirking is reduced. The optimal contract length minimizes the sum of explicit contracting costs and the costs of shirking. Copyright 1988 by The London School of Economics and Political Science.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 55 (1988)
Issue (Month): 219 (August)
Pages: 343-53

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Handle: RePEc:bla:econom:v:55:y:1988:i:219:p:343-53

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Cited by:
  1. Mark Frascatore, 1997. "Staggered contracts and profitable entry deterrence: an application to professional sports," Journal of Economics, Springer, vol. 66(1), pages 71-86, February.
  2. Mohamed Ali Ben Halima, 2005. "The determinants for labour contract length A French micro-econometric study," Working Papers 0503, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  3. Ziesemer,Thomas, 2001. "Contract Prolongation In Innovation Production As A Principal-Agent Problem With Moral Hazard," Research Memorandum 036, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  4. Ferdinando Colombo & Guido Merzoni, 2008. "For how long to tie your hands? Stable relationships in an unstable environment," Journal of Economics, Springer, vol. 95(2), pages 93-120, November.
  5. Danziger, Leif, 1995. "Discrete shocks and fixed duration of labor contracts," Labour Economics, Elsevier, vol. 2(4), pages 359-379, December.
  6. Protopopescu Dan, 2008. "Improving the Effort Concept: A Revision of the Traditional Approach in the Context of Controlled Dynamic Stochastic Environments," UFAE and IAE Working Papers 739.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC), revised 03 Dec 2009.
  7. Aizenman, Joshua & Hausmann, Ricardo, 2000. "The impact of inflation on budgetary discipline," Journal of Development Economics, Elsevier, vol. 63(2), pages 425-449, December.
  8. Mohamed Ben Halima & Bassem Ben Halima, 2008. "Determinants for Labour Contract Length: A French Microeconometric Study," Post-Print halshs-00365976, HAL.

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