Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/122089
Authors: 
Nikolowa, Radoslawa
Year of Publication: 
2014
Series/Report no.: 
Working Paper, School of Economics and Finance, Queen Mary, University of London 721
Abstract: 
We develop a model of relational contracts with moral hazard and asymmetric persistent information about an employee's type. We find that the form of the optimal contract depends on the job characteristics as well as the distribution of employees' talent. Bonus contracts are more likely to be adopted in complex jobs and when high talent is not too common or too rare. Firms with 'normal' jobs are more likely to adopt termination contracts. In labor market equilibrium, different contracts may be adopted by ex ante identical firms. Hence, we offer an explanation for the co-existence of different employment systems within the same industry.
Subjects: 
Relational contracts
Job characteristics
Employment systems
Labor market segmentation
JEL: 
D82
M5
L14
Document Type: 
Working Paper

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