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A Model of Nominal Contracts

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  • Smith, Bruce D

Abstract

A model is produced in which labor contracts that prespecify (unindexed) nominal wage payments arise endogenously. These contracts function as a self-selection mechanism. Under appropriately different attitudes toward price-level risk (which can either arise directly from preferences or be induced by different patterns of asset holdings), nominal contracts allow high-productivity workers to signal their type by their willingness to accept unindexed contracts. This explanation of nominal contracts does not require that money be used in any particular set of transactions, and nominal contracts enhance the risk faced by all parties accepting them. Copyright 1989 by University of Chicago Press.

Suggested Citation

  • Smith, Bruce D, 1989. "A Model of Nominal Contracts," Journal of Labor Economics, University of Chicago Press, vol. 7(4), pages 392-414, October.
  • Handle: RePEc:ucp:jlabec:v:7:y:1989:i:4:p:392-414
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    Cited by:

    1. Carola Pessino, 1996. "Returns to Education in Greater Buenos Aires 1986-1993: From Hyperinflation to Stabilization and Beyond," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(99), pages 205-226.
    2. Haubrich, Joseph G & King, Robert G, 1991. "Sticky Prices, Money, and Business Fluctuations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 243-259, May.
    3. Guido Tabellini & Scott Freeman, 1998. "The optimality of nominal contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(3), pages 545-562.
    4. Carola Pessino, 1993. "From Aggregate Shocks to Labor Market Adjustments: Shifting of Wage Profiles Under Hyperinflation in Argentina," CEMA Working Papers: Serie Documentos de Trabajo. 95, Universidad del CEMA.

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