Early contract renegotiation: An analysis of U.S. labor contracts from 1970 to 1995
AbstractThis paper examines the ex post flexibility of U.S. labor contracts during the 1970-95 period by investigating whether unanticipated changes in inflation increase the likelihood of a contract being renegotiated prior to its expiration. We find strong empirical support for this hypothesis. Specifically, our results indicate that renegotiations are triggered principally by large and infrequent price shocks of either sign. When combined with evidence that ex ante contract durations are shorter during episodes of increased inflation uncertainty, our results suggest that these contracts are flexible both ex ante and ex post to changes in the evolution of inflation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Staff Reports with number 521.
Date of creation: 2011
Date of revision:
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Vroman, Susan B, 1989. "Inflation Uncertainty and Contract Duration," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 677-81, November.
- Roberts, Michael R. & Sufi, Amir, 2009. "Renegotiation of financial contracts: Evidence from private credit agreements," Journal of Financial Economics, Elsevier, vol. 93(2), pages 159-184, August.
- Oliver Hart & John Moore, 1997.
"Default and Renegotiation: A Dynamic Model of Debt,"
Harvard Institute of Economic Research Working Papers
1792, Harvard - Institute of Economic Research.
- Oliver Hart & John Moore, 1998. "Default And Renegotiation: A Dynamic Model Of Debt," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 1-41, February.
- Hart, O. & Moore, J., 1989. "Default And Renegotiation: A Dynamic Model Of Debt," Working papers 520, Massachusetts Institute of Technology (MIT), Department of Economics.
- Oliver Hart & John Moore, 1997. "Default and Renegotiation: A Dynamic Model of Debt," STICERD - Theoretical Economics Paper Series 321, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Oliver Hart & John Moore, 1997. "Default and Renegotiation: A Dynamic Model of Debt," NBER Working Papers 5907, National Bureau of Economic Research, Inc.
- Robert Rich & Joe Tracy, 2000.
"Uncertainty and labor contract durations,"
106, Federal Reserve Bank of New York.
- Shavell, Steven, 1984. "The Design of Contracts and Remedies for Breach," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 121-48, February.
- Taylor, John B, 1980.
"Aggregate Dynamics and Staggered Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 88(1), pages 1-23, February.
- Harris, Milton & Holmstrom, Bengt, 1987. "On the Duration of Agreements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 389-406, June.
- Canzoneri, Matthew B., 1980. "Labor contracts and monetary policy," Journal of Monetary Economics, Elsevier, vol. 6(2), pages 241-255, April.
- Christofides, L. N. & Wilton, D. A., 1983. "The determinants of contract length : An empirical analysis based on Canadian micro data," Journal of Monetary Economics, Elsevier, vol. 12(2), pages 309-319.
- Christofides, Louis N, 1985. "The Impact of Controls on Wage Contract Duration," Economic Journal, Royal Economic Society, vol. 95(377), pages 161-68, March.
- Peter Cramton & Joseph S. Tracy, 1992.
"Strikes and Holdouts in Wage Bargaining: Theory and Data,"
Papers of Peter Cramton
92aer, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
- Cramton, Peter C & Tracy, Joseph S, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," American Economic Review, American Economic Association, vol. 82(1), pages 100-121, March.
- Antonio Estache & J.L. Guasch & A. Iimi & Lourdes Trujillo, 2008. "Multidimentionality and Renegotiation: Evidence from Transport-Sector PPP Transaction in Latin America," Working Papers ECARES 2008_021, ULB -- Universite Libre de Bruxelles.
- Kevin J. Murphy, 1992. "Determinants of contract duration in collective bargaining agreements," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 45(2), pages 352-365, January.
- Gray, Jo Anna, 1978. "On Indexation and Contract Length," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 1-18, February.
- Dye, Ronald A, 1985. "Optimal Length of Labor Contracts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 251-70, February.
- Christofides, L.N., 1989.
"The Interaction Between Indexation, Contract Duration And Non-Contengent Wage Adjustment,"
1989-13, University of Guelph, Department of Economics.
- Christofides, Louis N, 1990. "The Interaction between Indexation, Contract Duration and Non-contingent Wage Adjustment," Economica, London School of Economics and Political Science, vol. 57(227), pages 395-409, August.
- Danziger, Leif & Neuman, Shoshana, 2003.
"Delays in Renewal of Labor Contracts: Theory and Evidence,"
IZA Discussion Papers
709, Institute for the Study of Labor (IZA).
- 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.
- Gu, Wulong & Kuhn, Peter, 1998. "A Theory of Holdouts in Wage Bargaining," American Economic Review, American Economic Association, vol. 88(3), pages 428-49, June.
- Nicolae Garleanu & Jeffrey Zwiebel, 2009. "Design and Renegotiation of Debt Covenants," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 749-781, February.
- Danziger, Leif, 1988. "Real Shocks, Efficient Risk Sharing, and the Duration of Labor Contracts," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 435-40, May.
- Huberman, Gur & Kahn, Charles M, 1988. "Limited Contract Enforcement and Strategic Renegotiation," American Economic Review, American Economic Association, vol. 78(3), pages 471-84, June.
- Huberman, Gur & Kahn, Charles M., 1988. "Strategic renegotiation," Economics Letters, Elsevier, vol. 28(2), pages 117-121.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber).
If references are entirely missing, you can add them using this form.