IS THE BEHAVIOR OF HOURS WORKED CONSISTENT WITH IMPLICIT CONTRACT THEORY

This paper examines the determinants of hours worked when employment r elationships are influenced by risk-sharing considerations. The enviro nment considered is an extension of the standard symmetric-information risk-sharing model that allows for the possibility of enforcement pro blems on the part of both the employer and the employee. We show that this class of risk-sharing model unambiguously predicts hours to be in fluenced by wages only through an income effect. Using data from the P SID, we find evidence in favor of this extended version of the risk-sh aring model.