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The effects of risk on efficient labor contracts

Noel Gaston and Randall Wright ()

Finnish Economic Papers, 1991, vol. 4, issue 1, 2-9

Abstract: We analyze the effects of productivity risk on the expected utility of workers under efficient labor contracts. With multiplicative uncertainty in productivity, an increase in risk increases workers' expected utility, holding expected profit constant, as has been shown by Rosen. With a technology that is concave in both labor and the productivity shock, however, the opposite is true. We also study the effects of risk on wages, employment and hours, and characterize the dependence of these effects on the curvature of the marginai productivity schedule.

Date: 1991
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