Optimal Negotiation Pattern under a Revenue-Indexing Contract

Shik Heo
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Shik Heo: Chung-Ang University

Korean Economic Review, 1996, vol. 11, issue 2, 97-112

Abstract: This paper studies a model of long-term contracts in which the choice of the ne-gotiation pattern is endogenized and the nominal wage rate is tied to a share of the contracting sector's total revenue. It is shown that a revenue-indexing contract under certain circumstances may favor a pattern of short-term and synchronized negotia-tions to enhance macroeconomic performance in the sense of lowering output and employment fluctuations. Therefore, this finding suggests that Japan and Korea us-ing a form of revenue-indexing contracts might go through annual and synchronized wage settlements in the spring time, so called Shunto.

Date: 1996
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