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Complexity, Contract and the Employment Relationship

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  • W. Bentley MacLeod

    (Boston College)

Abstract

This paper introduces a model of contract incompleteness and bounded rationality based on the multi-tasking model of Holmstrom and Milgrom (1991). It is shown that the trade-off between the use of an employment relationship versus and explicit state contingent contract depends on number of tasks or complexity of the services provided by the individual.

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File URL: http://fmwww.bc.edu/EC-P/wp342.pdf
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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 342..

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Length: 28 pages
Date of creation: 01 Jan 1997
Date of revision:
Handle: RePEc:boc:bocoec:342

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Web page: http://fmwww.bc.edu/EC/
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References

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  1. George Baker & Robert Gibbons & Kevin J. Murphy, 1993. "Subjective Performance Measures in Optimal Incentive Contracts," NBER Working Papers 4480, National Bureau of Economic Research, Inc.
  2. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March.
  3. Dye, Ronald A, 1985. "Costly Contract Contingencies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 233-50, February.
  4. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  6. Cremer, Jacques, 1986. "Cooperation in Ongoing Organizations," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 33-49, February.
  7. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  8. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  9. MacLeod, W Bentley & Malcomson, James M, 1988. "Reputation and Hierarchy in Dynamic Models of Employment," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 832-54, August.
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Citations

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Cited by:
  1. Hege, U. & Viala, P., 1997. "Contentious Contracts," Discussion Paper 1997-109, Tilburg University, Center for Economic Research.
  2. MacLeod, W.B. & Malcomson, J.M., 1997. "Motivation and markets," Discussion Paper Series In Economics And Econometrics 9720, Economics Division, School of Social Sciences, University of Southampton.
  3. Luca Anderlini & Leonardo Felli, 1998. "Costly Bargaining and Renegotiation - (Now published in Econometrica, 69(4) (March 2001), pp. 377-411.)," STICERD - Theoretical Economics Paper Series 361, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  4. Chongen Bai & Zhigang Tao, 2000. "Franchising as a Nexus of Incentive Devices for Production Involving Brand Name," Econometric Society World Congress 2000 Contributed Papers 0964, Econometric Society.

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