IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Implicit Contracts: A Survey

Listed author(s):
  • Rosen, Sherwin
Registered author(s):

7mplicit contracts resolve the distribution of uncertainty and utilization of specific human capital between risk averse workers and less risk averse firms. Incomplete contracts are required to yield involuntary layoffs in contract markets: otherwise, contracts are efficient and pareto optimal by construction. There is a close relation between contract theory and neoclassical labor market theory. Contracts smooth consumption, but increase the volatility of labor supply and labor utilization to demand disturbances, because contractural insurance eliminates the income effects of socially diversifiable risks. This result is similar to the intertemporal substitution hypothesis. However, the price mechanism in a contract is substantially different. Contracts embody a nonlinear two-part pricing scheme. The lump sum part allocates the income-consumption consequences of risks and the marginal pricing part allocates production and labor utilization. This implicit pricing mechanism is in all respects "flexible," though the observed average hourly wage combines both parts and may give the outward appearanceof rigidity. Furthermore, the observed average wage rate in a contract does not reflect marginal conditions necessary for structural econometric estimation. Indivisibilities appear necessary to account for the split between work-sharing and layoffs. Contracts with private information are also considered in the nonlinear pricing context.

(This abstract was borrowed from another version of this item.)

If 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.

File URL: http://www.jstor.org/fcgi-bin/jstor/listjournal.fcg/00220515/.21-.30
File Function: full text
Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by American Economic Association in its journal Journal of Economic Literature.

Volume (Year): 23 (1985)
Issue (Month): 3 (September)
Pages: 1144-1175

as
in new window

Handle: RePEc:aea:jeclit:v:23:y:1985:i:3:p:1144-75
Contact details of provider: Web page: https://www.aeaweb.org/journal
Email:


More information through EDIRC

Order Information: Web: https://www.aeaweb.org/subscribe.html

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.:

as
in new window


  1. Lilien, David M, 1980. "The Cyclical Pattern of Temporary Layoffs in United States Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 62(1), pages 24-31, February.
  2. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
  3. Kydland, Finn E., 1984. "Labor-force heterogeneity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 173-208, January.
  4. Joseph G. Altonji, 1982. "The Intertemporal Substitution Model of Labour Market Fluctuations: An Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 49(5), pages 783-824.
  5. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
  6. Grossman, Herschel I., 1978. "Risk shifting, layoffs, and seniority," Journal of Monetary Economics, Elsevier, vol. 4(4), pages 661-686, November.
  7. Lawrence F. Katz, 1986. "Layoffs, Recall and the Duration of Unemployment," NBER Working Papers 1825, National Bureau of Economic Research, Inc.
  8. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  9. Schultze, Charles L, 1985. "Microeconomic Efficiency and Nominal Wage Stickiness," American Economic Review, American Economic Association, vol. 75(1), pages 1-15, March.
  10. Bull, Clive, 1983. "The Existence of Self-Enforcing Implicit Contracts," Working Papers 83-22, C.V. Starr Center for Applied Economics, New York University.
  11. Bewley, Truman F., 1980. "The permanent income hypothesis and long-run economic stability," Journal of Economic Theory, Elsevier, vol. 22(3), pages 377-394, June.
  12. repec:pri:indrel:dsp01gt54kn026 is not listed on IDEAS
  13. Hashimoto, Masanori, 1979. "Bonus Payments, on-the-Job Training, and Lifetime Employment in Japan," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1086-1104, October.
  14. Raisian, John, 1983. "Contracts, Job Experience, and Cyclical Labor Market Adjustments," Journal of Labor Economics, University of Chicago Press, vol. 1(2), pages 152-170, April.
  15. Topel, Robert H, 1983. "On Layoffs and Unemployment Insurance," American Economic Review, American Economic Association, vol. 73(4), pages 541-559, September.
  16. Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-1362, December.
  17. Neftci, Salih N, 1978. "A Time-Series Analysis of the Real Wages-Employment Relationship," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 281-291, April.
  18. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
  19. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  20. John M. Abowd & Orley C. Ashenfelter, 1981. "Anticipated Unemployment, Temporary Layoffs, and Compensating Wage Differentials," NBER Chapters, in: Studies in Labor Markets, pages 141-170 National Bureau of Economic Research, Inc.
  21. Arnott, Richard J & Riley, John G, 1977. " Asymmetrical Production Possibilities, the Social Gains from Inequality and the Optimum Town," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(3), pages 301-311.
  22. Burdett, Kenneth & Mortensen, Dale T, 1980. "Search, Layoffs, and Labor Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 652-672, August.
  23. Grossman, Michael, 1973. "Unemployment and Consumption: Note," American Economic Review, American Economic Association, vol. 63(1), pages 208-213, March.
  24. Robert E. Hall, 1970. "Why Is the Unemployment Rate So High at Full Employment?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(3), pages 369-410.
  25. Hutchens, Robert M, 1983. "Layoffs and Labor supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 37-55, February.
  26. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
  27. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-543, May.
  28. John Geanakoplos & Takatoshi Ito, 1982. "On Implicit Contracts and Involuntary Unemployment," Cowles Foundation Discussion Papers 640, Cowles Foundation for Research in Economics, Yale University.
  29. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
  30. Pissarides, Christopher A, 1984. "Search Intensity, Job Advertising, and Efficiency," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 128-143, January.
  31. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-1085, December.
  32. Lundberg, Shelly J, 1985. "Tied Wage-Hours Offers and the Endogeneity of Wages," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 405-410, August.
  33. Arnott, Richard J & Hosios, Arthur J & Stiglitz, Joseph E, 1988. "Implicit Contracts, Labor Mobility, and Unemployment," American Economic Review, American Economic Association, vol. 78(5), pages 1046-1066, December.
  34. Polemarchakis, Heraklis M & Weiss, L, 1978. "Fixed Wages, Layoffs, Unemployment Compensation, and Welfare," American Economic Review, American Economic Association, vol. 68(5), pages 909-917, December.
  35. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 87-104, August.
  36. Joseph E. Stiglitz, 1984. "Theories of Wage Rigidity," NBER Working Papers 1442, National Bureau of Economic Research, Inc.
  37. Kahn, Charles & Scheinkman, Jose, 1985. "Optimal employment contracts with bankruptcy constraints," Journal of Economic Theory, Elsevier, vol. 35(2), pages 343-365, August.
  38. Oliver D. Hart, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Oxford University Press, vol. 50(1), pages 3-35.
  39. Brown, Murray & Wolfstetter, Elmar, 1984. "Underemployment and normal leisure," Economics Letters, Elsevier, vol. 15(1-2), pages 157-163.
  40. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  41. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
  42. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  43. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-748, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:aea:jeclit:v:23:y:1985:i:3:p:1144-75. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)

or (Michael P. Albert)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.