Staff Report 131

A Note on Labor Contracts With Private Information and Household Production

Ed Nosal
Randall Wright | Consultant
Richard Rogerson

Published January 1, 1991

A classic result in the theory of implicit contract models with asymmetric information is that “underemployment” results if and only if leisure is an inferior good. We introduce household production into the standard implicit contract model and show that we can have underemployment at the same time that leisure is a normal good.

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