Consumption commitments and employment contracts

Andrew Postlewaite; Larry Samuelson; Dan Silverman

doi:10.1111/j.1467-937X.2008.00472.x

Consumption commitments and employment contracts

Andrew Postlewaite, Larry Samuelson, Dan Silverman

Research output: Contribution to journal › Article

19 Scopus citations

Abstract

We examine an economy in which the cost of consuming some goods can be reduced by making commitments that reduce flexibility. We show that such consumption commitments can induce consumers with risk-neutral underlying utility functions to be risk averse over small variations in income, but sometimes to seek risk over large variations. As a result, optimal employment contracts will smooth wages conditional on being employed, but may incorporate a possibility of unemployment.

Original language	English (US)
Pages (from-to)	559-578
Number of pages	20
Journal	Review of Economic Studies
Volume	75
Issue number	2
DOIs	https://doi.org/10.1111/j.1467-937X.2008.00472.x
State	Published - Apr 1 2008
Externally published	Yes

ASJC Scopus subject areas

Economics and Econometrics

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Postlewaite, A., Samuelson, L., & Silverman, D. (2008). Consumption commitments and employment contracts. Review of Economic Studies, 75(2), 559-578. https://doi.org/10.1111/j.1467-937X.2008.00472.x

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