Incentive-Compatible Long-term Contracts and Job Rationing

Helmut Bester

Journal of Labor Economics, 1989, vol. 7, issue 2, 238-55

Abstract: This article presents a model in which markets for long-term contractual employment coexist with spot markets for labor. Assuming the absence of third-party enforcement, wage contracts are required to be incentive compatible. As a consequence, contract wages yield higher expected utility to the worker than spot-market wages so that, in equilibrium, contractual long-term jobs are rationed. Copyright 1989 by University of Chicago Press.

Date: 1989
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