Labor-Market Implications of Contracts under Moral Hazard
The optimal contract under moral hazard is embedded in a standard Mortensen-Pissarides matching model. Under standard assumptions, we show that when firms cannot perfectly observe workers' productivity the optimal contract can take the form of a debt contract exhibiting almost a fixed wage along the business cycle. When this contract is embedded in the standard matching model, the calibrated model generates a more stable wage and more volatile employment than the model with Nash bargaining.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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