Why are There Explicit Contracts of Employment?

25 Pages Posted: 17 Dec 2001

See all articles by Harvey S. James, Jr.

Harvey S. James, Jr.

University of Missouri at Columbia - Division of Applied Social Sciences

Derek M. Johnson

University of Connecticut - Department of Economics

Date Written: October 2003

Abstract

In this paper we explain the use of explicit contracts of employment, particularly those that embody high- rather than low-powered incentives and clauses that supersede the common law defaults. Our analysis is based on an understanding of two fundamental problems that arise when agency relationships are established between a worker and firm. The first is that employment often requires the creation and allocation of specific process rights - defined as the granting of discretionary or decision-making authority and internal property rights over company assets. The second is that economic requirements of the agency relationship are often quite different from the nature of agency characterized in and supported by the common law. The implication is that implicit employment contracts supported by the common law are incapable of effectively governing employment relationship characterized by these two problems. Thus, explicit contractual provisions are required in the employment relationship.

JEL Classification: D23, K31

Suggested Citation

James, Harvey S. and Johnson, Derek M., Why are There Explicit Contracts of Employment? (October 2003). CORI Working Paper No. 01-06. Available at SSRN: https://ssrn.com/abstract=293941 or http://dx.doi.org/10.2139/ssrn.293941

Harvey S. James (Contact Author)

University of Missouri at Columbia - Division of Applied Social Sciences ( email )

Columbia, MO
United States
573-884-9682 (Phone)

HOME PAGE: http://https://hsjames2.wordpress.com

Derek M. Johnson

University of Connecticut - Department of Economics ( email )

341 Mansfield Rd
U-63
Storrs, CT 06269
United States
860-570-9221 (Phone)

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