Job Protection versus Contracts At‐Will: Trading‐Off Entrenchment and Shirking

Roman Inderst

Scandinavian Journal of Economics, 2017, vol. 119, issue 4, 939-961

Abstract: I compare two types of employment contracts: those offering job protection and at‐will contracts. Their respective performances reveal the following trade‐off: at‐will contracts provide cheaper incentives for agents not to shirk, but they can induce the opportunistic actions of agents to make themselves less dispensable (“entrenchment”). One implication of the model is that more senior managers, such as chief executive officers, should receive more protection, for example, through contracts that are explicitly not at‐will or contracts that specify a longer duration.

Date: 2017
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