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The Optimal Indexation of Asymmetric Information Contracts

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  • John Leach

Abstract

The indexation of labor contracts is examined in a setting from which the hedging motive for partial indexation has been excl uded. Since firms have better information than workers, contracts mus t satisfy an incentive compatibility constraint. The optimal degree o f indexation depends on the incentives generated by the best fully-in dexed contract. If firms would understate (overstate) the productivit y of labor under this contract, the optimal contract is partially (mo re-than-fully) indexed.

Suggested Citation

  • John Leach, 1988. "The Optimal Indexation of Asymmetric Information Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 21(1), pages 61-71, February.
    • Handle: RePEc:cje:issued:v:21:y:1988:i:1:p:61-71
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    Cited by:

    1. Anandi Sahu, 2008. "Degrees of tax indexation and nominal interest rates: Effects of inflation on incentives to save and invest," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 32(1), pages 91-104, January.

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