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Labor-Market Implications of Contracts under Moral Hazard

  • Kangwoo Park

    (Seoul National University)

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    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.

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    File URL: https://economicdynamics.org/meetpapers/2007/paper_277.pdf
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    Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 277.

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    Date of creation: 2007
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    Handle: RePEc:red:sed007:277
    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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    20. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
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