Credit, Incentives, and Reputation: A Hedonic Analysis of Contractual Wage Profiles

Loren Brandt () and Arthur J Hosios

Journal of Political Economy, 1996, vol. 104, issue 6, 1172-1226

Abstract: A hedonic analysis of principal-agent employment contracts is developed, in which workers and employers exchange labor services and contractual payment patterns, and is applied to contract data from a household-level survey in rural China in 1935. The results indicate that credit-market constraints motivated workers' and employers' contract choices; that shirking by workers rather than by employers was the dominant incentive issue; that reputational concerns rather than threats of termination were the key worker-disciplining device; and, finally, that a contract's third party acted as an enforcement device rather than as a matchmaker. Copyright 1996 by University of Chicago Press.

Date: 1996
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