Nonrevelation in Employment Contracts
The author considers an employment contracting model in which firms have private information that is directly payoff-relevant to workers and workers are always free to quit. In contrast to existing models, firms will sometimes fail to reveal adverse information to workers in equilibrium because of the effect this will have on quits. Risk-averse workers can prefer such 'pooling' contracts to separating ones because inducing truth-telling requires firms to cut wages in states that are 'already' bad for the worker. Applications to firms' incentives to reveal unsafe working conditions and impending layoffs or plant closures are discussed. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 35 (1994)
Issue (Month): 2 (May)
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