Consumption Commitments and Employment Contracts

Andrew Postlewaite, Larry Samuelson and Dan Silverman

The Review of Economic Studies, 2008, vol. 75, issue 2, 559-578

Abstract: We examine an economy in which the cost of consuming some goods can be reduced by making commitments that reduce flexibility. We show that such consumption commitments can induce consumers with risk-neutral underlying utility functions to be risk averse over small variations in income, but sometimes to seek risk over large variations. As a result, optimal employment contracts will smooth wages conditional on being employed, but may incorporate a possibility of unemployment. Copyright 2008, Wiley-Blackwell.

Date: 2008
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Related works:
Working Paper: Consumption Commitments and Employment Contracts (2006)
Working Paper: Consumption Commitments and Employment Contracts (2006)
Working Paper: Consumption Commitments and Employment Contracts (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:75:y:2008:i:2:p:559-578

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