Malfeasance in Long Term Employment Contracts: A New General Model with an Application to Unionism
This paper argues that the structure of long-term employment contractsis influenced by the possibility that at least four different kinds of opportunistic behavior, or "malfeasance, "may occur in them. While the consequences of some of these problems have been examined in various papers, no single model has yet treated all four and thus brought out their essential symmetry. In particular, a certain kind of malfeasance by firms has apparently been universally overlooked-an oversight we try to remedy by developing a simple model here. Other advantages of the present model are that, unlike other models, it endogenizes the path of both sides of the contract -wages and effort -and has fairly intuitive first-order conditions. It also shows how earlier conclusions, such as the notion that wages are likely to rise faster than marginal products in equilibrium, are the results of less-than-general model specification, and has some interesting implications when applied to unionism: by proposing that unions act as workers'equivalent to certain contract enforcement policies like the disciplinary dismissals used by firms, it provides what is to the author's knowledge the only consistent theoretical explanation of the quite commonly observed U-shaped pattern of the union wage effect by age and shows how unions might play a positive efficiency role in this regard
5 pages matching binding constraint in this book
Results 1-3 of 5
What people are saying - Write a review
We haven't found any reviews in the usual places.
absolute risk aversion allocate Auerbach binding constraint Bureau of Economic calculus of variations cheating is Type compensation and effort competitive labor market contract structure contracts deviate contracts will tend credible threats cycle derived disciplinary dismissals dismiss workers disutility of effort Economic Research Effect of Unionism employment contracts equations ex post rents example expected factor faster than marginal firm cheating firm malfeasance first-best contracts Grossman hiring cost human capital implications Income profiles indirect utility function kind of malfeasance Lawrence H Lazear Lipsey malfeasance by firms marginal products National Bureau NBER negative non-union firms older workers optimal contract problem Optimal Taxation optimal wage paper parameters party period Policy productivity profile progressive taxation proposed that unions PVW H rise faster Rudiger Dornbusch second-best contracts tend to rise Type 2 malfeasance unilaterally terminating union wage effect value of profits value of utility variations problem wage profile wages and effort withdraw worker cheating