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Robust Regulation of Labour Contracts

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Listed:
  • Th'eo Durandard
  • Alexis Ghersengorin

Abstract

We study the robust regulation of contracts in moral hazard problems. A firm offers a contract to incentivise a worker protected by limited liability. A regulator restricts the set of permissible contracts to (i) improve efficiency and (ii) protect the worker. The regulator faces uncertainty about both the worker's actions and the firm's production cost, and evaluates regulations based on their worst-case regret. The regret-minimising regulation mandates a minimum piece rate compensation for the worker. This rule simultaneously guarantees a fair share for the worker and preserves enough contractual flexibility to provide incentives.

Suggested Citation

  • Th'eo Durandard & Alexis Ghersengorin, 2024. "Robust Regulation of Labour Contracts," Papers 2411.04841, arXiv.org, revised Sep 2025.
    • Handle: RePEc:arx:papers:2411.04841
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    References listed on IDEAS

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    1. Brian Bell & Stephen Machin, 2018. "Minimum Wages and Firm Value," Journal of Labor Economics, University of Chicago Press, vol. 36(1), pages 159-195.
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    3. Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 56(5), pages 1177-1190, September.
    4. Garrett, Daniel F. & Georgiadis, George & Smolin, Alex & Szentes, Balázs, 2023. "Optimal technology design," Journal of Economic Theory, Elsevier, vol. 209(C).
    5. Daniel Aaronson, 2001. "Price Pass-Through And The Minimum Wage," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 158-169, February.
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