NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Wage Contracts with Incomplete and Costly Information

Joshua Aizenman

NBER Working Paper No. 1150
Issued in June 1983
NBER Program(s):   EFG

Optimal wage indexation, as derived by Gray, was subject to criticism due to a lack of efficient use of information; failure to clear the market which resulted in non-optimal contracts; and the lack of an explicit use of welfare criteria. The purpose of this paper is to derive a wage contract scheme that is free from the above criticism, but is capable of preserving the insight of Cray's analysis. In so doing the analysis reveals the role of costs of information collection in a world characterized by incomplete information.The analysis focuses also on the interaction between wage indexation and costly information collection as alternative adjustment schemes.It is shown that the first depends only on relative variances, whereas the second also depends on aggregate volatility. The justification for labor contracts hinges on the cost of information collection and last minute wage negotiation.

download in pdf format
   (235 K)

email paper

This paper is available as PDF (235 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1150

 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us