nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2021‒08‒23
two papers chosen by
Guillem Roig
University of Melbourne

  1. A Unique and Robust Social Contract: An Application to Negotiations with Probabilistic Conflicts By Jin Yeub Kim
  2. Dual Returns to Experience By Garcia-Louzao, Jose; Hospido, Laura; Ruggieri, Alessandro

  1. By: Jin Yeub Kim (Yonsei Univ)
    Abstract: This paper considers social contracts (or mechanisms) in negotiations with incomplete information in which an outside option is a probabilistic conflict and a peaceful agreement is ex ante efficient. Applications include partnership, labor-management bargaining, pretrial negotiations, and international negotiations. I compute the set of interim incentive efficient mechanisms, the ex ante incentive efficient mechanism, as well as the neutral bargaining solution. I numerically illustrate that the focus on the ex ante incentive efficient mechanism as the most reasonable prediction is not robust. This paper justifies the neutral bargaining solution as the unique, robust solution among all interim incentive efficient mechanisms.
    Keywords: Negotiation; Social contracts; Incomplete information; Incentive efficiency; Neutral bargaining solution
    JEL: C78 D74 D82 F51 J52
    Date: 2021–08
  2. By: Garcia-Louzao, Jose (Bank of Lithuania); Hospido, Laura (Bank of Spain); Ruggieri, Alessandro (University of Nottingham)
    Abstract: In this paper we study human capital accumulation and wage trajectories of young workers in a dual labor market. Using rich administrative data for Spain, we follow workers since labor market entry to measure experience accumulated under different contractual arrangements and relate it to current wages. We show that returns to experience accumulated in fixed-term contracts are, on average, lower than the returns to experience acquired in permanent jobs. However, this gap masks significant heterogeneity across individuals. The gap in returns widens along the skill distribution, where workers in the upper tail have the largest difference in returns. Moreover, among equally experienced workers, higher incidence of temporary employment in the past is associated with substantially lower wages. Ultimately, heterogeneous returns to experience translate into significant changes in the position of workers along the distribution of wage growth after 15 years in the labor market, bearing implications for life-cycle wage inequality.
    Keywords: human capital, labor market duality, earnings dynamics
    JEL: J30 J41 J63
    Date: 2021–07

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