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Institutions and Contract Enforcement
Institutions and Contract Enforcement
- Publication Year :
- 2008
- Publisher :
- Columbia University, 2008.
-
Abstract
- We provide evidence on how two important types of institutions – dismissal barriers, and bonus pay – affect contract enforcement behavior in a market with incomplete contracts and repeated interactions. Dismissal barriers are shown to have a strong negative impact on worker performance, and market efficiency, by interfering with firms' use of firing threat as an incentive device. Dismissal barriers also distort the dynamics of worker effort levels over time, cause firms to rely more on the spot market for labor, and create a distribution of relationship lengths in the market that is more extreme, with more very short and more very long relationships. The introduction of a bonus pay option dramatically changes the market outcome. Firms are observed to substitute bonus pay for threat of firing as an incentive device, almost entirely offsetting the negative incentive and efficiency effects of dismissal barriers. Nevertheless, contract enforcement behavior remains fundamentally changed, because the option to pay bonuses causes firms to rely less on long-term relationships. Our results show that market outcomes are the result of a complex interplay between contract enforcement policies and the institutions in which they are embedded.
- Subjects :
- jel:C9
Economics and Econometrics
Labour economics
incomplete contracts
bonus pay
efficiency wages
employment protection
firing costs
experiment
Test
Employment protection legislation
media_common.quotation_subject
Wage
Arbeitsvertrag
jel:D01
Leistungsorientierte Vergütung
jel:J41
Leistungsmotivation
Dismissal
Efficiency wage
institutions, contracts, contract enforcement, market experiment
employment protection, efficiency wages, bonus pay, incomplete contracts, firing costs, experiment
ddc:330
Incomplete contracts
contracts
institutions
market experiment
C9
Labor economics
Industrial relations
Enforcement
Kündigungsschutz
media_common
jel:C90
Commerce
contract enforcement
Leistungsentgelt
jel:J30
Management
Labor relations
jel:J3
J3
D01
Business
J41
incomplete contracts, bonus pay, efficiency wages, employment protection, firing costs, experiment
Subjects
Details
- Database :
- OpenAIRE
- Accession number :
- edsair.doi.dedup.....25cffc3312dc8fd7e967c3d35eaecdb3
- Full Text :
- https://doi.org/10.7916/d83t9f58