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| Author: | Danziger, L. |
| Title: | On the prevalence of labor contracts with fixed duration |
| Journal: | American Economic Review
1992 : MAR, VOL. 82:1, p.195-206 |
| Index terms: | LABOUR CONTRACTS CONSUMER PRICE INDEX TIME |
| Language: | eng |
| Abstract: | The specification of the contract duration is determined endogenously. The wage rate can be indexed to the consumer price index, but there is a loss since the indexation must be the same for different types of shocks. It is shown that the loss due to imperfect wage indexation at a given instant in the contract period is independent of the specification of the contract duration and of the innovations in the consumer price index. Since the loss due to contracting cost depends on the expected duration only, a fixed duration is chosen. The optimal fixed duration is characterized. |
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