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Ambiguity aversion and the absence of wage indexation

Jean-Marc Tallon () and Sujoy Mukerji ()
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Jean-Marc Tallon: EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: This paper analyzes optimal wage contracting assuming agents are not subjective expectedutility maximizers but are, instead, ambiguity (or uncertainty) averse decision makers whomaximize Choquet expected utility. We show that such agents will choose not to include anyindexation coverage in their wage contracts even when inflation is uncertain, unless theperceived inflation uncertainty is high enough. Significantly, the exercise does not presume anyexogenous costs (e.g., transactions costs) of including indexation links

Keywords: ambiguity aversion; indexation (search for similar items in EconPapers)
Date: 2004
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00174562
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Published in Journal of Monetary Economics, Elsevier, 2004, pp.653-670

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