Job Protection vs. Contracts At-Will: Trading-Off Entrenchment and Shirking

25 Pages Posted: 14 Feb 2014

Date Written: September 2012

Abstract

I take an efficient contracting approach to answer the question how much "job protection" to offer employees, in particular those at the top of organizations. Given their privileged information or formal authority, senior managers who are not given such protection are likely to take opportunistic actions that make them less dispensable. The optimal employment contract trades off the resulting inefficiencies that arise from such "self-made" job security with the reduced incentives and higher compensation costs under explicit employment protection. One implication of the model is that more senior managers, such as CEOs, should receive both higher rents and more protection, e.g., through contracts that are explicitly not at-will or that specify a longer duration.

Keywords: Employment agreements, At-will contracts, contract duration

Suggested Citation

Inderst, Roman, Job Protection vs. Contracts At-Will: Trading-Off Entrenchment and Shirking (September 2012). Available at SSRN: https://ssrn.com/abstract=2395252 or http://dx.doi.org/10.2139/ssrn.2395252

Roman Inderst (Contact Author)

Goethe University Frankfurt ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60629
Germany
+49 (69) 798-34601 (Phone)
+49 (69) 798-35000 (Fax)

HOME PAGE: http://www.wiwi.uni-frankfurt.de/en/departments/finance/lehrstuhl/prof-dr-roman-inderst/team

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
37
Abstract Views
419
PlumX Metrics