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Acceptable Contracts, Opportunism, and Rigid Hourly Wages

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  • Roger A. McCain
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    Abstract

    This paper presents a model of opportunism and contingent wage schedules in labor markets, which is, in a sense, intermediate between the "implicit" and explicit contract approaches. The "expected utility" condition is not a part of the contract, but is a condition for the acceptability of a contract form by employees. Contract forms are constrained by conditions that are enforcable ex post. Of the contract forms examined, the only one mutually acceptable is one with inflexible hourly wages.

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    File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume13/V13N3P205_213.pdf
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    Bibliographic Info

    Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

    Volume (Year): 13 (1987)
    Issue (Month): 3 (Jul-Sep)
    Pages: 205-213

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    Handle: RePEc:eej:eeconj:v:13:y:1987:i:3:p:205-213

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    Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
    Phone: (201) 684-7346
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    Web page: http://www.ramapo.edu/eea/journal.html
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    1. Klein, Benjamin, 1984. "Contract Costs and Administered Prices: An Economic Theory of Rigid Wages," American Economic Review, American Economic Association, American Economic Association, vol. 74(2), pages 332-38, May.
    2. Azariadis, Costas & Stiglitz, Joseph E, 1983. "Implicit Contracts and Fixed Price Equilibria," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(3), pages 1-22, Supplemen.
    3. Hart, Oliver D, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 50(1), pages 3-35, January.
    4. Kahn, Charles M. & Green, Jerry, 1983. "Wage-Employment Contracts," Scholarly Articles 3203642, Harvard University Department of Economics.
    5. Eckalbar, John C, 1980. "The Stability of Non-Walrasian Processes: Two Examples," Econometrica, Econometric Society, Econometric Society, vol. 48(2), pages 371-86, March.
    6. Hall, Robert E & Lazear, Edward P, 1984. "The Excess Sensitivity of Layoffs and Quits to Demand," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 2(2), pages 233-57, April.
    7. Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 41(1), pages 37-50, January.
    8. Grossman, Sanford J & Hart, Oliver D, 1983. "Implicit Contracts under Asymmetric Information," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(3), pages 123-56, Supplemen.
    9. Azariadis, Costas, 1983. "Employment with Asymmetric Information," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(3), pages 157-72, Supplemen.
    10. Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, American Economic Association, vol. 75(4), pages 708-20, September.
    11. Chari, V V, 1983. "Involuntary Unemployment and Implicit Contracts," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(3), pages 107-22, Supplemen.
    12. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
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