Ambiguity aversion and the absence of wage indexation
This paper analyzes optimal wage contracting assuming agents are not subjective expected utility maximizers but are, instead, ambiguity (or uncertainty) averse decision makers who maximize Choquet expected utility. We show that such agents will choose not to include any indexation coverage in their...
| Main Authors: | , |
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| Format: | Working paper |
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University of Oxford
2002
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| _version_ | 1826259494008520704 |
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| author | Mukerji, S Tallon, J |
| author_facet | Mukerji, S Tallon, J |
| author_sort | Mukerji, S |
| collection | OXFORD |
| description | This paper analyzes optimal wage contracting assuming agents are not subjective expected utility maximizers but are, instead, ambiguity (or uncertainty) averse decision makers who maximize Choquet expected utility. We show that such agents will choose not to include any indexation coverage in their wage contracts even when inflation is uncertain, unless the perceived inflation uncertainty is high enough. Significantly, the exercise does not presume any exogenous costs (e.g. transactions costs) of including indexation links. |
| first_indexed | 2024-03-06T18:50:46Z |
| format | Working paper |
| id | oxford-uuid:1022788f-e3b0-4ccd-acb0-1c633da26f13 |
| institution | University of Oxford |
| last_indexed | 2024-03-06T18:50:46Z |
| publishDate | 2002 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:1022788f-e3b0-4ccd-acb0-1c633da26f132022-03-26T09:54:54ZAmbiguity aversion and the absence of wage indexationWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:1022788f-e3b0-4ccd-acb0-1c633da26f13Bulk import via SwordSymplectic ElementsUniversity of Oxford2002Mukerji, STallon, JThis paper analyzes optimal wage contracting assuming agents are not subjective expected utility maximizers but are, instead, ambiguity (or uncertainty) averse decision makers who maximize Choquet expected utility. We show that such agents will choose not to include any indexation coverage in their wage contracts even when inflation is uncertain, unless the perceived inflation uncertainty is high enough. Significantly, the exercise does not presume any exogenous costs (e.g. transactions costs) of including indexation links. |
| spellingShingle | Mukerji, S Tallon, J Ambiguity aversion and the absence of wage indexation |
| title | Ambiguity aversion and the absence of wage indexation |
| title_full | Ambiguity aversion and the absence of wage indexation |
| title_fullStr | Ambiguity aversion and the absence of wage indexation |
| title_full_unstemmed | Ambiguity aversion and the absence of wage indexation |
| title_short | Ambiguity aversion and the absence of wage indexation |
| title_sort | ambiguity aversion and the absence of wage indexation |
| work_keys_str_mv | AT mukerjis ambiguityaversionandtheabsenceofwageindexation AT tallonj ambiguityaversionandtheabsenceofwageindexation |