the structure of multi period employment contracts with incomplete insurance markets this paper examines the structure of multi period employment contracts in an economy with identical workers when only incomplete insurance is provided against job related contingencies the incompleteness of insurance markets stems from an asymmetry of information between the worker and the insurer in this situation the employment contract will provide implicit insurance by paying workers less than their marginal product during some periods and more during others the paper explores how the characteristics of such contracts are altered by increases in uncertainty worker risk aversion hiring costs and the amount of specific and general training provided a sequel to this paper examines the efficiency properties of such contracts this abstract was borrowed from another version of this item

wage profiles and imperfect capital markets a positive analysis this paper examines the structure of long term employment contracts when labor is mobile and risk averse employers are unable to monitor workers outside job offers workers cannot borrow against future income and workers productivity is increasing in the length of service with the long term employer workers are then liquidity constrained and the contract trades off consumption smoothing against efficiency in turnover in contrast to previous papers which have examined this problem this paper provides a continuous time formulation that permits a detailed characterization of the properties of the wage profile

implicit contracts moral hazard and unemployment this paper considers a firm whose marginal revenue product of labor is a random variable we derive the form of an optimal long term contract between workers and the firm under the assumption that labor s marginal product is observed by the firm but not by the workers we show that the existence of asymmetric information causes unemployment to be greater than in a situation where information about labor s marginal product is public or where employment is determined in spot markets in particular unemployment can occur when the marginal product of labor exceeds the reservation wage

to value or not to value that is not the question abstract should we reject money when we value nature like most environmentalists ecological economists are increasingly divided on this question synthesizing political ecology with ecological economics we argue that this way of framing the question is limited we propose a reformulation of the question into when and how to value with money and under what conditions we recommend four criteria for a sound choice environmental improvement distributive justice and equality maintenance of plural value articulating institutions and confronting commodification under neo liberalism we call for due attention to the socio political context within which a valuation is placed and the political goals it serves the relevance of this framework is demonstrated by applying it to three practical cases pollution damages water pricing and payments for ecosystem services

discrimination in an equilibrium search model i construct an equilibrium search model where some employers have a distaste for hiring minority workers and show that this bias results in economic discrimination against minority workers although only unprejudiced firms hire minority workers minority workers receive lower wages than workers not facing discrimination whenever any employers in the market have a distaste for minority workers one implication of the model is that gender or racial wage differentials understate the utility loss from discrimination in addition the wages of minority workers increase when their proportion increases in the labor market

job matching and on the job training conventional analysis predicts that workers pay part of their on the job training costs by accepting a lower starting wage and subsequently realize a return to this investment in the form of greater wage growth missing from the conventional treatment of on the job training is a discussion of the process by which heterogeneous workers are matched to jobs requiring varying amounts of training this matching process constitutes a key feature of the on the job training model presented in this article and tested with a unique data set containing extensive information concerning on the job training employer search wages and wage and productivity growth

productivity gains from geographic concentration of human capital evidence from the cities abstract based on recent theoretical developments the argument is made that the average level of human capital is a local public good cities with higher average levels of human capital should therefore have higher wages and higher land rents after conditioning on the characteristics of individual workers and dwellings this prediction is supported by data for standard metropolitan statistical areas smsas in the united states where the smsa average levels of formal education and work experience are used as proxies for the average level of human capital the alternative explanations of omitted smsa variables and self selection are evaluated an estimate of the effect of an additional year of average education on total factor productivity is computed

the political dimensions of payments for ecosystem services pes cascade or stairway this paper aims to advance our understanding of payments for ecosystem services pes as political projects by offering an analytical tool for investigating power relations political decisions place specific ideas and social norms in the construction and operation of pes schemes this proposed analytic tool is based on a revised version of the ecosystem service cascade which we propose to transform into an ecosystem service stairway model as a device to analyse political processes in ecosystem service construction and provision we show that the key to understanding the politics of pes lies in the antagonistic processes between the different steps of the stairway in particular we show that the definition and mobilisation of the ecosystem service potential esp is the stage where the most fundamental political decisions are made here the role of intermediaries is particularly significant as they introduce their own conceptions of society nature relations which function as epistemic selectivities in further defining and mobilising the esp and in generating the resulting ecosystem services ess we illustrate our main conceptual insights and evaluate the usefulness of our political ecosystem stairway model by applying it to two latin american cases one in brazil and the other in bolivia

valuing nature a reply to esteve corbera abstract this paper is a reply to esteve corbera s critique of my earlier commentary on the economic valuation of nature it seeks to clarify my motivations and objectives in writing the original piece it highlights important distinctions between our positions and explains why acceptance of financialized approaches to conservation in any of its guises works to deepen the embedded nature of neoliberal ideology

evaluating innovation and labour market relationships the case of italy in this paper the link between labour market flexibility and innovation is analysed paying particular attention to the different technological regimes of economic activities and the different geographical areas of the italian economy a dynamic panel data specification is used to assess the endogenous relationship between patents included as a proxy of the innovation and job turnover and wages which represent labour market indicators the results show that higher job turnover only has a significant and negative impact on patent activities in regional sectors of northern italy while a positive and significant impact of blue and white collar wages has been generally found

implicit contracts labor mobility and unemployment firms inability to monitor their employees search effort forces a tradeoff between risk bearing and incentive considerations when designing employment related insurance since the provision of insurance against firm specific shocks adversely affects workers incentives to find better jobs the optimal contract provides only partial insurance it prescribes low high wages and under over employment to encourage workers to leave stay at low high productivity firms and it employs quits and layoffs as alternative means of inducing separations at low productivity firms with the mix depending upon the relative efficiency of the on and off the job search technologies our analysis of implicit contracts with asymmetric search information establishes that any consistent explanation for worksharing layoffs severance pay quits and unemployment must focus on questions of labor mobility this abstract was borrowed from another version of this item

firm heterogeneity and location choices evidence from foreign manufacturing investments in china this paper develops a model which indicates that foreign firms location choices are determined jointly by site attributes and firm heterogeneity the model is estimated using data on 2565 foreign manufacturing investments in china the conditional logit estimates and simulation results provide supportive evidence an increase in a firm s labour intensity magnifies the impact of labour cost while a location s local communications infrastructure has a stronger influence on foreign firms that have adopted modern information technology it is also found that agglomeration effects decrease with firm size and labour quality implications for researchers and policy makers are discussed in the conclusion

scale externalities in korea this paper estimates the nature and magnitude of scale externalities in a developing country korea in the period 1983 1993 this is a period of rapid industry deconcentration from seoul to other metro areas providing a context where externalities are measured when local scale magnitudes are changing dramatically the data allow us to examine the emerging degree of national industrial concentration in different industries as related to their scale externality magnitudes we also examine whether individual industries agglomerate in cities which have a comparative advantage for that industry

economic inequality and the value of nature abstract understanding what influences the value of nature is crucial for informing environmental policy from a sustainability perspective economic valuation should not only seek to determine a society s willingness to pay for environmental goods to devise an efficient allocation of scarce resources but should also account for distributional effects to ensure justice yet how economic inequality affects the value of non market environmental goods remains understudied combining recently developed theoretical results with empirical evidence this commentary shows that more equal societies have a higher valuation for environmental public goods and that non market benefits of environmental policy accrue over proportionally to poorer households on this ground we discuss implications for environmental valuation management and policy making and identify a number of fruitful areas for future research we conclude that environmental valuation should explicitly account for economic inequality and that encompassing assessments of the distributional effects of environmental policies must consider the distribution of non market environmental benefits

economic experiments for collective action in the kyrgyz republic lessons for payments for ecosystem services pes abstract payments for ecosystem service pes schemes have become increasingly popular in attempting to promote ecological stewardship and conservation behaviour through provisioning of economic incentives often as market inspired transactions the scholarship and empirical application of pes schemes has tended to focus on contract design and conditionality of payments rather than more fundamentally examining whether incentives do indeed influence behaviour in desired ways in this paper a set of incentive framed treatments are introduced to existing collective action institutions promoting common pool resource management in order to explore the effects of incentive provision on the propensity to participate in the maintenance of collectively owned irrigation canals the experiments take place in the kyrgyz republic characterized by the historic transition of nomadic collective traditions subsequent soviet rule to advances towards democracy market integration and the first pes pilot in the country in the incentive treatments provided we reveal the close interplay between the framing of incentives the influence of village leaders mobilizing collective activity and social norms of reciprocity trust and enforcement in mobilizing collective work each framed case study exhibits a unique configuration of individual motivations group norms and other regarding rationalities providing critical insight into this new frontier of pes implementation

a model of rationing and labour supply theory and estimation a number of authors most prominently clower 1965 and leijonhofvud 1968 have interpreted keynes s theory of unemployment as a disequilibrium model nominal price and wage rigidity prevent the labour market from clearing the actual level of employment is given by the minimum of the effective demand for labour and the effective supply general disequilibrium models of income and employment determination have been developed by barro and grossman 1976 and malinvaud 1977 the model has been extended to the open economy by dixit 1978 and to a two period rational expectations context by neary and stiglitz 1979 the econometric implications of the disequilibrium approach have been developed by goldfeld and quandt 1972 maddala and nelson 1974 and rosen and quandt 1978 among others in summary the disequilibrium approach has provided a fruitful context for analysing macroeconomic behaviour in a competitive walrasian system the notional supply of labour is defined as the amount of labour a worker wishes to provide when he can buy and sell as much as he would like in all markets subject only to his budget constraint and given prices and wages the notional supply of labour then is given by l where 1 c attains the indirect utility function

implicit contracts with asymmetric information and bankruptcy the effect of interest rates on layoffs this paper develops a model in which a firm writes labour contracts with workers and debt contracts with creditors firms have more information than do the owners of the factors of production and they are also subject to limited liability we show that if the limited liability constraint is binding then the employment level is inefficient relative to a situation of symmetric information the firm is then embedded into a partial equilibrium model in which the real rate of interest is exogenously determined we show that increases in the real rate of interest increase the inefficiency of the optimal employment contract and lead to layoffs in more states of nature than would occur at lower real interest rates recent literature in the area of implicit contracts has shown considerable interest in the assumption of asymmetric information henceforth a i papers by azariadis 1982 green and kahn 1982 and grossman and hart 1981 have all shown that a i will interfere with optimal risk sharing but although these models produce non walrasian outcomes it is not clear that they are capable of explaining the observed variations in employment over the business cycle in the absence of a link between the level of employment and other macroeconomic variables these new versions of contract theory are open to the charge that they are presenting a complicated explanation of frictional unemployment one potential link between variations in output and variations in intertemporal prices is suggested by models which explicitly allow for the possibility of bankruptcy sappington 1983 has shown that bankruptcy will generate inefficient outcomes even between risk neutral agents and farmer 1984 has shown that if sappington type contracts are incorporated into a macroeconomic structure then the resulting model predicts that bankruptcies will vary countercyclically over the business cycle although bankruptcy is important however it is unlikely that bankruptcies alone will account for all of the output loss during a recession the purpose of this paper is to show that the assumptions of a i and limited liability will generate a model in which the employment level is inefficient and in which the magnitude of this inefficiency varies systematically with the expected real rate of interest this model predicts that the observed increase in the incidence of layoffs during recessions is directly attributable to the effects of high interest rates on aggregate supply some evidence of the phenomenon to be explained is presented below

paying for the hydrological services of mexico s forests analysis negotiations and results abstract mexico faces both high deforestation and severe water scarcity the payment for hydrological environmental services psah program was designed to complement other policy responses to the crisis at the interface of these problems through the psah the mexican federal government pays participating forest owners for the benefits of watershed protection and aquifer recharge in areas where commercial forestry is not currently competitive funding comes from fees charged to water users from which nearly us 18 million are earmarked for payments of environmental services applicants are selected according to several criteria that include indicators of the value of water scarcity in the region this paper describes the process of policy design of the psah the main actors involved in the program its operating rules and provides a preliminary evaluation one of the main findings is that many of the program s payments have been in areas with low deforestation risk selection criteria need to be modified to better target the areas where benefits to water users are highest and behavior modification has the least cost otherwise the program main gains will be distributive but without bringing a pareto improvement in overall welfare

integration of unemployment insurance with retirement insurance abstract this paper analyzes a social insurance system that integrates unemployment insurance with a pension program allowing workers to borrow against their future wage income to finance consumption during an unemployment episode and thus improving search incentives while reducing the risks arising from unemployment this paper identifies the conditions under which integration improves welfare and the factors which determine the optimal degree of integration we show that when the duration of unemployment is very short compared to the period of employment or retirement the optimal system involves exclusive reliance on pension funded self insurance this system imposes a negligible risk burden for workers while avoiding attenuating search incentives we also argue that joint integration of several social insurance programs with a pension program through an individual account is desirable unless the risks are perfectly correlated with each other

the competitive firm with uncertainty in the rate of labor turnover the adoption of more sophisticated production techniques usually requires firms to increase their expenditures on worker training and to pay greater attention to the costs of labor turnover economists are beginning to explicitly incorporate both training expenditures and the rate of labor turnover into the theory of the firm at the same time they are extending the theory of the firm to cases in which the firm faces uncertainty in its environment for example uncertainty in the price of output the prices of inputs or the quantity of output that a given input mix will yield this paper seeks to extend both of these areas of research by first introducing uncertainty in the rate of labor turnover and then examining the consequences of this new form of uncertainty for optimal training expenditures the optimal wage and the optimal level of output at the firm the paper assumes that the firm can increase output by providing workers with more training and can discourage turnover by paying workers a higher wage the quantities of labor and capital that the firm employs are held constant throughout the analysis it is found that the introduction of uncertainty in the rate of labor turnover results in lower optimal expenditures for both training and wages the reduction in training also reduces the level of output per worker at the firm comparative static analysis of ceteris paribus changes in the mean and variance of the labor turnover rate are also performed an increase in the mean of the turnover rate with the variance held constant reduces the wage and the amount of training provided also an increase in the variance of the turnover rate with the mean held constant reduces the wage and the amount of training provided a number of authors have considered models of the competitive firm in which the firm must determine its output level in the presence of uncertainty sandmo 13 batra and ullah 2 hartman 7 ishii 9 ingene and yu 8 flacco 5 and many others consider the behavior of the competitive firm facing uncertainty in its output price blair 3 ratti and ullah 12 stewart 15 perrakis 11 macminn and holtman 10 and many others consider cases in which the firm faces uncertainty in its technology or factor prices in all of these models it is assumed that the firm must make its input and output decisions before the uncertainty is resolved without ex

seniority wages and productivity a turbulent decade why does a worker s wage tend to grow with seniority in the firm and what does this have to do with productivity two decades ago neoclassical labor economists thought that the theory of human capital provided a good answer to this question the last decade has however been one of puzzles and doubt at this point few would give an unambiguous answer and much hinges on the answer an attractive feature of human capital theory is that it yields a consistent and coherent explanation for several aspects of the employer employee relationship for example seniority systems layoff policies that vary with skill and the relationship between tenure and turnover can be explained in terms of human capital the fact that these explanations are connected leads however to something like a domino effect doubts about one cast doubt on the others if the human capital explanation for the wage seniority relationship is flawed then human capital explanations for other phenomena may require reevaluation in addition an important body of empirical research is built around the assumption that at any point in time a person s wage indicates the person s productivity included here is the extensive literature on the human capital earnings function as well as work on labor demand market discrimination and compensating differentials that assumption has become controversial in recent years in part because implicit contract theories predict that compensation will be redistributed over the period of the contract if a person s spot wage has little to do with spot productivity but rather is an instrument of a complex insurance or deferred compensation scheme then a reassessment of the empirical research may be necessary

economic transition dynamic externalities and city industry growth in china using data on two digit manufacturing industries for prefecture level cities during the period of 2000 05 this study found a significant non linear relationship between dynamic externalities and city industry growth industrial specialisation and local competition may help city industry growth but may harm growth when they exceed a certain level diversity helps industry growth but only when it reaches a certain level liberalised globalised and locally protected industries are more likely to benefit from dynamic externalities industries located in cities with greater authorities are also found to grow faster the empirical findings indicate that economic transition has created conditions to allow a larger role of dynamic externalities in stimulating city industry growth

the history of ecosystem services in economic theory and practice from early notions to markets and payment schemes article i nfo this paper reviews the historic development of the conceptualization of ecosystem services and examines critical landmarks in economic theory and practice with regard to the incorporation of ecosystem services into markets and payment schemes the review presented here suggests that the trend towards monetization and commodification of ecosystem services is partly the result of a slow move from the original economic conception of nature s benefits as use values in classical economics to their conceptualization in terms of exchange values in neoclassical economics the theory and practice of current ecosystem services science are examined inthelight ofthis historicaldevelopment from thisreview we conclude thatthefocus onmonetary valuation and payment schemes has contributed to attract political support for conservation but also to commodify a growing number of ecosystem services and to reproduce the neoclassical economics paradigm and the market logic to tackle environmental problems

the quantification and valuation of ecosystem services article i nfo article history received 7 august 2010 accepted 16 october 2010 this paper explores differences between economic and ecological criteria for identifying measuring and evaluating ecosystem services it argues that economic stakeholders user groups generally do well in identifying these services and assigning prices to them these prices arise spontaneously in and serve to coordinate market activity related to the environment the relevant ecological information which markets gather and apply tends to be dispersed contingent particular local transitory and embedded in institutions and practices ecologists and other scientists in contrast often seek to understand how ecosystems work and which populations and processes provide ecosystem services the knowledge science seeks unlike the information markets gather tends to be centralized collaborative collective and consensus based science pursues concepts and principles that are timeless and general rather than ephemeral and site specific the paper contrasts the dispersed and decentralized information organized by markets with the collective and centralized knowledge characteristic of science the paper argues that the conceptual distance between market based and science based methods of assembling information and applying knowledge defeats efforts to determine the value of ecosystem services in any integrated sense

work effort and search subsidies with long run equilibrium contracts abstract we consider an economy where infinitely lived firms offer long term contracts to finitely lived heterogeneous workers and labor mobility is imperfect in the short run when on the job search costs are partly verifiable firms as a rule subsidize the search activity of poorly adapted workers when these are risk averse and not when they are risk neutral when firms know worker types and monitor individual productivities perfectly work effort is first best independently of search and the problem is one of pure moral hazard in search when workers are risk averse when types cannot be observed work efforts are generally lower and search subsidies used more frequently than when types are observable

peer monitoring and credit markets a major problem for institutional lenders is ensuring that borrowers exercise prudence in the use of the funds so that the likelihood of repayment is enhanced one partial solution is peer monitoring having neighbors who are in a good position to monitor the borrower be required to pay a penalty if the borrower goes bankrupt peer monitoring is largely responsible for the successful financial performance of the grameen bank of bangladesh and of similar group lending programs elsewhere but peer monitoring has a cost it transfers risk from the bank which is in a better position to bear risk to the cosigner in a simple model of peer monitoring in a competitive credit market this article demonstrates that the transfer of risk leads to an improvement in borrowers welfare

what is different about urbanization in rich and poor countries cities in brazil china india and the united states abstract are the well known facts about urbanization in the united states also true for the developing world we compare american metropolitan areas with analogous geographic units in brazil china and india both gibrat s law and zipf s law seem to hold as well in brazil as in the u s but china and india look quite different in brazil and china the implications of the spatial equilibrium hypothesis the central organizing idea of urban economics are not rejected the india data however repeatedly rejects tests inspired by the spatial equilibrium assumption one hypothesis is that spatial equilibrium only emerges with economic development as markets replace social relationships and as human capital spreads more widely in all four countries there is strong evidence of agglomeration economies and human capital externalities the correlation between density and earnings is stronger in both china and india than in the u s strongest in china in india the gap between urban and rural wages is huge but the correlation between city size and earnings is more modest the cross sectional relationship between area level skills and both earnings and area level growth are also stronger in the developing world than in the u s the forces that drive urban success seem similar in the rich and poor world even if limited migration and difficult housing markets make it harder for a spatial equilibrium to develop

agglomeration economies in urban manufacturing industries a case of japanese cities abstract the effects of urban agglomeration economies on productivities in two digit manufacturing industries is estimated using the cross section data of japanese cities in 1979 urbanization and localization economies which are major forms of urban agglomeration economies are explicitly separated the estimates of these economies vary considerably among industries light industries receive more productive advantages from urbanization economies than from localization economies but heavy industries experience these economies more from localization economies than from urbanization economies

the economic valuation of nature a question of justice while many of the concerns over the economic valuation of nature have gained broad exposure justice concerns remain largely peripheral within both scholarly debate and actual valuation exercises the emphasis is most often on reconciling cultural and monetary valuation increasingly as the valuation of nature gains momentum proponents of the trend seek to relieve apprehensions by suggesting that economic valuation is entirely compatible with intrinsic and esthetic values this attempt to mollify skeptics however misses the mark regardless of whether or not nature may be valued simultaneously in cultural and economic terms the social and environmental justice implications of monetary valuation remain the purpose of this commentary is to clarify that much of the resistance to the economic valuation of nature is motivated by these justice concerns and that reassurances about the cultural value of nature do little to quell them several of the justice reasons to remain cautious of the economic valuation of nature are also elaborated

managerial incentives investment and aggregate implications scale effects we explore a managerial model of investment behaviour in which an incentive problem arises because one input factor managerial effort is not publicly observed we show that an optimal incentive contract leads to investment levels which are below first best in low states and that this phenomenon can account for greater cyclical variability in aggregate production and investment from the perspective of incentive scheme design a special feature of the model is that screening takes place over two variables investment and output rather than one as is customary

the effectiveness of payments for environmental services we adopt a theory based approach to synthesize research on the effectiveness of payments for environmental services in achieving environmental objectives and socio economic co benefits in varying contexts our theory of change builds on established conceptual models of impact pathways and highlights the role of 1 contextual dimensions e g political institutional and socio economic conditions spatial heterogeneity in environmental service values and provision costs and interactions with pre existing policies and 2 scheme design e g payment type and level contract length targeting and differentiation of payments in determining environmental and socio economic outcomes to shed light on the overall effectiveness of payment schemes and its determinants we review counterfactual based empirical evaluations comparative analyses of case studies and meta analyses our review suggests that program effectiveness often lags behind the expectations of early theorists however we also find that theory has advanced sufficiently to identify common reasons for why payment schemes fail or succeed moreover payment schemes are often rolled out along with other policy instruments in so called policy mixes advances in theory and evaluation research are needed to improve our understanding of how such policy mixes interact with the targeted social ecological systems 2017

the pes conceit revisiting the relationship between payments for environmental services and neoliberal conservation payments for environmental services pes has become a popular means to neoliberalize biodiversity conservation throughout the world yet research on pes is increasingly focused on debating exactly how neoliberal programmes really are documenting complexities in pes implementation and concluding that few programmes are very market based in practice while we agree that ideal neoliberal implementation of pes does not and cannot exist we argue that focusing only on micro politics misunderstands the importance of analysing pes as a form of neoliberal conservation the question is not just whether pes is innately neoliberal but how it functions within a broader neoliberal political economy by focusing on the overarching governance and power structures that gave rise to pes in the first place we more clearly see what we call the pes conceit namely that the approach implicitly accepts neoliberal capitalism as both the problem and the solution to the ecological crisis this strategy is not only contradictory but also commonly fails to achieve intended outcomes falling far short of conservation objectives while also often exacerbating socioeconomic inequality this problematic conceit we conclude cannot be addressed through only micro oriented studies it demands connecting micro and macro political economic analyses to confront broader neoliberal power structures

valuing nature paying for ecosystem services and realizing social justice a response to matulis 2014 debates about the role of economic valuation in market based conservation have proliferated in recent years specifically scholars have engaged with the justice implications of non market valuation and the emergence of new policy instruments paying for or trading ecosystem services and biodiversity i hereby contribute to these debates by responding to a published commentary in this journal and i shed light on what i believe should be a new agenda for critical scholarship of market based conservation i argue for more precision in our claims distinguishing across market based instruments and across types of outcomes and for a more nuanced account of the ethical connotations of such instruments which should involve analyzing both unequal socio economic relations and culturally bounded conceptions of justice overall i advocate for the development of a more robust empirical basis to derive generalizations on the procedural distributive and livelihood implications of market based instruments for conservation

urban productivity in china in this empirical study we test the relationship of chinese urban productivity and city size using over 119 790 firm level production data cross 28 industries from the third national industrial survey along with the urban population data of 224 cities we find strong and prevailing significant agglomeration economies in chinese urban areas the estimated average agglomeration elasticity is around 0 051 implying that every doubling of city size will provide a 3 6 per cent gain in firm productivity the breakdown analysis suggests that based on current data the major source of the agglomeration advantage comes from localisation economies benefits from the concentration of firms of the same industry within one geographical area rather than urbanisation economies externalities from urban development itself the maximum size study also suggests that while most chinese cities have yet to grow to demonstrate the full strength of agglomeration economies many chinese industries have reached the optimal i

equilibrium wage distributions the observation that different firms charge different prices for what appears to be the same commodity or pay different wages for what appears to be equivalent labour has long been explained in economics by a reference to imperfect information this paper is concerned with characterising market equilibrium with imperfect information we do not present a general theory rather we develop in some detail an example of importance in its own right imperfect information in the labour market several properties of our example in particular the existence of equilibria with price wage dispersion unemployment excess supply of labour positive profits multiple equilibria and the nonoptimality or some of all of the equilibria are of more general validity other results may not be this paper is concerned with two kinds of imperfect information a individuals may not know the wage paid in any particular firm or whether there is a vacancy in any particular firm until they apply for a job 1 b there are several characteristics besides the wage rate associated with a job which are important to the individual some like the normal length of a work week become known when the individual applies for the job information about other characteristics e g personalities of colleagues is acquired only gradually there is one important difference between the two kinds of imperfect in

labor turnover wage structures and moral hazard the inefficiency of competitive markets a multiperiod general equilibrium model of the labor market is developed in which risk averse workers are faced with job related uncertainty and labor turnover is costly if a worker is unlucky and suffers a bad job match he quits and joins another firm hoping that he will like its work environment more because the quality of a job match is unobservable workers cannot insure against the risk of a bad match the firm provides implicit insurance against job dissatisfaction typically by paying workers more than their net marginal products in their early years with the firm and less subsequently since the probabilities of the insured against events the quit rates over time are affected by the amount of such insurance provided this implicit insurance is characterized by moral hazard individuals quit when in the absence of insurance they would not the equilibrium contract balances out efficiency in risk bearing with efficiency in turnover incentives we show that the equilibrium contract is not con