Robust Regulation of Labour Contracts

Th\'eo Durandard and Alexis Ghersengorin

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Abstract: We study the robust regulation of labour contracts in moral hazard problems. A firm offers a contract to incentivise a worker protected by limited liability. A regulator chooses the set of permissible contracts to (i) improve efficiency and (ii) protect the worker. The regulator does not know the worker's actions and the firm's costs and evaluates regulations by their worst-case regret. The regret-minimising regulation imposes a minimum piece rate compensation for the worker: it allows all contracts above a minimum linear contract. The slope of the minimum contract balances the worker's protection and the necessary flexibility for incentive provision.

Date: 2024-11, Revised 2025-02
New Economics Papers: this item is included in nep-cta, nep-des, nep-lma, nep-mic and nep-reg
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