Terms-of-trade uncertainty, incomplete markets and unemployment

R. Fernandez

    Research output: Contribution to journalArticle

    Abstract

    This paper examines a two-sector small open economy that is subject to shocks in its terms-of-trade. Risk-neutral entrepreneurs use implicit contracts to insure risk-averse workers against fluctuations in their income. The characteristics of these contracts are examined within a general equilibrium framework and the implications for employment, wages and utility of different realizations of relative prices are analyzed. The implicit contract equilibrium is shown to be constrained Pareto optimal when the social planner is unable to provide income directly to unemployed workers. -Author

    Original languageEnglish (US)
    Pages (from-to)881-894
    Number of pages14
    JournalInternational Economic Review
    Volume33
    Issue number4
    DOIs
    StatePublished - 1992

    ASJC Scopus subject areas

    • Economics and Econometrics

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