Optimal Labour Contracts and Imperfect Competition: A Framework for Analysis.

This paper examines the macroeconomic properties of imperfectly competitive economies by modeling the labor market from the perspective of optimal contract theory. The point is to demonstrate that important properties of imperfectly competitive economies (such as underemployment equilibria, multipliers, and the prospect of coordination failures) are not the consequence of arbitrary labor relations, but can emerge with privately optimal labor contracts.