The right to quit work: An efficiency rationale for restricting the freedom of contract

Daniel Müller and Patrick Schmitz

Journal of Economic Behavior & Organization, 2021, vol. 184, issue C, 653-669

Abstract: A principal hires an agent to provide a verifiable service. Initially, the agent can exert unobservable effort to reduce his disutility from providing the service. If the agent is free to waive his right to quit, he may voluntarily sign a contract specifying an inefficiently large service level, while there are insufficient incentives to exert effort. If the agent’s right to quit is inalienable, the underprovision of effort may be further aggravated, but the service level is ex post efficient. Overall, it turns out that the total surplus can be larger when agents are not permitted to contractually waive their right to quit work. Yet, we also study an extension of our model in which even the agent can be strictly better off when the parties have the contractual freedom to waive the agent’s right to quit.

Keywords: Moral hazard; Incentive theory; Labor contracts; Efficiency wages; Law and economics (search for similar items in EconPapers)
JEL-codes: D23 D86 J83 K12 K31 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268121000597
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Right to Quit Work: An Efficiency Rationale for Restricting the Freedom of Contract (2021)
Working Paper: The Right to Quit Work: An Efficiency Rationale for Restricting the Freedom of Contract (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:184:y:2021:i:c:p:653-669

DOI: 10.1016/j.jebo.2021.02.004

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().