Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Jul, 1951, Volume 19, Issue 3

A Formal Theory of the Employment Relationship<293:AFTOTE>2.0.CO;2-2
p. 293-305

Herbert A. Simon

A distinction is drawn between a sales contract and an employment contract, and a formal model is constructed exhibiting this distinction. By introducing a definition of rational behavior, a method is obtained for determining under what conditions an employment contract will rationally be preferred to a sales contract, and what limits will rationally be placed on the authority of an employer in an employment contract. The relationship of this model to certain other theories of planning under uncertainty is discussed.

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