Assignment 7
(Due before class on November 8)
Resources: A. Vandenberghe, "Labor Contracts." Encyclopedia of Law & Economics (1999), pp.541-60, url: <http://encyclo.findlaw.com/5510book.pdf> ; a employment contract (i.e., job offer letter) that a Wellesley Economics' major received from a mulitnational bank; a employment contract (i.e., job offer letter) that a Wellesley Economics' major received from a mulitnational corporation, the original of a contract received by a senior consultant and the final contract that was signed by the senior consultant.
Please answer the following questions.
(1) Choose one of the contracts & answer the following questions
(a) How could the employee breach the contract?
(b) How could the employer breach the contract?
(c) What would the remedy for breach be (expectation damages, reliance damages, restitution damages, liquidated damages)?
(2) Under the neoclassical approach to contracts, contracts should: (i) encourage optimal commitment & optimal relaince, (ii)supply efficient default terms, (iii) forster enduring relationships, (iv) lower the level of risk & (v) efficiently allocate risk.
Does the neoclassical approach help to the explain the nature of the contract your read? Explain briefly.
(3) Under the transaction cost approach to contracts, the type of contracts should be related to (i) the frequency with which transactions are made & (ii) characteristics of the invstments made by both parties (nonspecific, mixed or idiosyncratic).
Does the transaction cost approach help to explain the nature of the contract your read ((i.e., whether the contract is classical, has trilateral governance or bilateral gofernance (relational contracting))?
(4) The economics' literature on employment contracts suggests that employment contracts will: (i) efficiently match employers with employees in the presence of asymmetric information, (ii) provide for the acquisition & retention of firm-specific human capital, (iii) allocate risk differently than a one-time, market transaction (e.g., provide earnings stability for employees) & (iv) motivate employees by making compensation depend on performance.
Does the contract you read reflect any of these motivations? Give specific clasuse of the contract that you believe reflect these motivations.
Upload your answers to the above questions to the above question to the Assignment 7 folder in the First Class Drop conference for the course before class on November 8.
Be prepared to present and discuss your answers to the above question in class on November 8.
© Ann Dryden Witte, 1997