Regulating damage clauses in (labor) contracts

Arbeitspapier

We analyze the role of damage clauses in labor contracts using a model in which a worker may want to terminate his current employment relationship and work for another firm. We show that the initial parties to a contract have an incentive to stipulate excessive damage clauses, which leads to ex post inefficiencies. This result is due to rent seeking motives a) between the contracting parties vis-à-vis third parties and b) among the contracting parties themselves. We then show that, by imposing an upper bound on the amount of enforceable damages, a regulator can induce a Pareto improvement; in some cases even the first best can be achieved

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 2367

Classification and Topics

• Classification: Wirtschaft
• Subject: Arbeitsvertrag ; Vertragsrecht ; Rent Seeking ; Verhandlungstheorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Muehlheusser, Gerd
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/34116
• URN: urn:nbn:de:101:1-20090406316
• Last update: 10.03.2025, 11:45 AM CET