Acceptable Contracts, Opportunism, and Rigid Hourly Wages

Abstract

This paper presents a model of opportunism and contingent wage schedules in labor markets, which is, in a sense, intermediate between the "implicit" and explicit contract approaches. The "expected utility" condition is not a part of the contract, but is a condition for the acceptability of a contract form by employees. Contract forms are constrained by conditions that are enforcable ex post. Of the contract forms examined, the only one mutually acceptable is one with inflexible hourly wages.