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Legal Default Rules: The Case of Wrongful Discharge Laws

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Author Info
W. Bentley MacLeod () (Columbia University and IZA Bonn)
Voraprapa Nakavachara () (University of Southern California)

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Abstract

One of the most vexing public policy issues is the extent to which governments should intervene into private contractual relationships. The purpose of this paper is to explore both theoretically and empirically the extent to which such interventions may enhance efficiency. In the case of employment law, economists have traditionally taken the view that intervention, such as protection against wrongful discharge, simply undoes the original intent of the parties to the agreement. We find that both the good faith and the implied contract exceptions to employment at will may enhance employment in occupations characterized by high levels of investment. These results suggest that under the appropriate conditions courts may enhance the operation of a competitive market by setting appropriate default remedies for breach of contract.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1970.

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Length: 56 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:iza:izadps:dp1970

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Related research
Keywords: employment law; wrongful discharge; private contracts; default rules;

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Find related papers by JEL classification:
J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends and Forecasts
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J61 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Geographic Labor Mobility; Immigrant Workers
K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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References listed on IDEAS
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.:
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Full references

Cited by:
(explanations, 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.)

  1. Armin Falk & David Huffman & W. Bentley MacLeod, 2008. "Institutions and Contract Enforcement," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," IZA Discussion Papers 2571, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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