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Contract Reopeners

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  • Danziger, Leif

Abstract

This article incorporates contract reopeners into the analysis of contract duration and compares contracts with a reopener to contracts that cannot be reopened. The model contains relative and nominal shocks. It is shown that the stated duration of a reopenable contract is shortened by uncertainty associated with small shocks but lengthened by uncertainty associated with large shocks. However, the discounted expected duration decreases with the uncertainty associated with both small and large shocks. There exists a critical size of a large shock for which a reopenable contract and a contract with an immutable duration are equally attractive. Copyright 1995 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 13 (1995)
Issue (Month): 1 (January)
Pages: 62-87

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Handle: RePEc:ucp:jlabec:v:13:y:1995:i:1:p:62-87

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Web page: http://www.journals.uchicago.edu/JOLE/

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Cited by:
  1. Danziger, Leif, 2006. "Extension of Labor Contracts and Optimal Backpay," IZA Discussion Papers 2366, Institute for the Study of Labor (IZA).
  2. Danziger, Leif, 1995. "Discrete shocks and fixed duration of labor contracts," Labour Economics, Elsevier, vol. 2(4), pages 359-379, December.
  3. Leif Danziger & Shoshana Neuman, 2005. "Delays in Renewal of Labor Contracts: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 23(2), pages 341-372, April.
  4. Andersen, Torben M. & Stampe Christensen, Morten, 2002. "Contract renewal under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 26(4), pages 637-652, April.
  5. Hanes, Christopher, 2010. "The rise and fall of the sliding scale, or why wages are no longer indexed to product prices," Explorations in Economic History, Elsevier, vol. 47(1), pages 49-67, January.
  6. Holden, Helge & Holden, Lars & Holden, Steinar, 2010. "Contract adjustment under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 657-680, April.

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