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Legal default rules: The case of wrongful discharge laws

  • W. Bentley MacLeod

    ()

    (Columbia University - Department of Economics)

  • Voraprapa Nakavachara

    ()

    (University of Southern California - Department of Economics)

One of the most vexing public policy issues is the extent to which governments should intervene into private contractual relationships. The purpose of this paper is to explore both theoretically and empirically the extent to which such interventions may enhance efficiency. In the case of employment law, economists have traditionally taken the view that intervention, such as protection against wrongful discharge, simply undoes the original intent of the parties to the agreement. We find that both the good faith and the implied contract exceptions to employment at will may enhance employment in occupations characterized by high levels of investment. These results suggest that under the appropriate conditions courts may enhance the operation of a competitive market by setting appropriate default remedies for breach of contract.

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File URL: http://www.econ.columbia.edu/RePEc/pdf/DP0506-19.pdf
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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0506-19.

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Length: 53 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:clu:wpaper:0506-19
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