Why Was There Mandatory Retirement? Or the Impossibility of Efficient Bonding Contracts

22 Pages Posted: 3 Jan 2002 Last revised: 11 Jul 2010

See all articles by Kevin Lang

Kevin Lang

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 1987

Abstract

Lazear has argued that hours constraints, in general, and mandatory retirement, in particular, form part of an efficient labor market contract designed to increase output by inhibiting worker shirking. Since the contract is efficient, legislative interference is welfare reducing. However, in any case where bonding is costly, the hours constraints will not be chosen optimally. Although it is theoretically possible that bonding is costless, in this case the earnings profile is indeterminate and we should never observe monitoring aimed at reducing shirking. It therefore appears that bonding should be modelled as costly. If so, the role of policy depends on the source of bonding costs, the set of feasible contracts and the policy options which are available to government.

Suggested Citation

Lang, Kevin, Why Was There Mandatory Retirement? Or the Impossibility of Efficient Bonding Contracts (March 1987). NBER Working Paper No. w2199, Available at SSRN: https://ssrn.com/abstract=293236

Kevin Lang (Contact Author)

Boston University - Department of Economics ( email )

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