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Yet another weird SF fan
 

Thursday, December 27, 2007

Examples of Implicit Contracts

The New York Times reports on “implicit contracts”:

The concept of “implicit contracts” was developed in a landmark 1988 paper by the economists Andrei Shleifer and Lawrence Summers. Their subject — hostile corporate takeovers — seems far from cyberprivacy, but it is not. Shleifer and Summers showed that increases in share price following takeovers were not due to gains in efficiency, as the defenders of those buyouts claimed. There often were such gains, but they were not the source of the profits. The profits came from reneging on implicit contracts — like the tradition of overpaying older workers who had been overworked when young on the understanding that things would even out later. These contracts, because implicit, were hard to defend in court. But the assets they protected were real. To profit from them, buyout artists had only to put someone in place who could, with a straight face and a clean conscience, say, “I didn’t promise nothin’!”
I can think of two more examples of implicit contracts:
  • The tradition of discriminating against immigrants on the understanding that the next generation or two would benefit.

  • The tradition of hiring university presidents on the understanding that they would not mention some lines of inquiry in public.

Identifying a specific example of the latter will be left as an exercise for the reader.

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