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Acceptable Contracts, Opportunism, and Rigid Hourly Wages

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  • Roger A. McCain

Abstract

This paper presents a model of opportunism and contingent wage schedules in labor markets, which is, in a sense, intermediate between the "implicit" and explicit contract approaches. The "expected utility" condition is not a part of the contract, but is a condition for the acceptability of a contract form by employees. Contract forms are constrained by conditions that are enforcable ex post. Of the contract forms examined, the only one mutually acceptable is one with inflexible hourly wages.

Suggested Citation

  • Roger A. McCain, 1987. "Acceptable Contracts, Opportunism, and Rigid Hourly Wages," Eastern Economic Journal, Eastern Economic Association, vol. 13(3), pages 205-213, Jul-Sep.
  • Handle: RePEc:eej:eeconj:v:13:y:1987:i:3:p:205-213
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume13/V13N3P205_213.pdf
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    1. Hall, Robert E & Lazear, Edward P, 1984. "The Excess Sensitivity of Layoffs and Quits to Demand," Journal of Labor Economics, University of Chicago Press, vol. 2(2), pages 233-257, April.
    2. Klein, Benjamin, 1984. "Contract Costs and Administered Prices: An Economic Theory of Rigid Wages," American Economic Review, American Economic Association, vol. 74(2), pages 332-338, May.
    3. Kahn, Charles M. & Green, Jerry, 1983. "Wage-Employment Contracts," Scholarly Articles 3203642, Harvard University Department of Economics.
    4. Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, vol. 75(4), pages 708-720, September.
    5. 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.
    6. Eckalbar, John C, 1980. "The Stability of Non-Walrasian Processes: Two Examples," Econometrica, Econometric Society, vol. 48(2), pages 371-386, March.
    7. Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 37-50.
    8. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
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