The effects on contracting behavior of varying remedies for misrepresentations in applications and for wrongful dismissal

This work examines the impact of legal remedies on the contracting behavior of parties in the insurance and employment settings. In the first part of this study, I develop models to explain why different remedies are used in the insurance and employment settings when a misrepresentation is made by an applicant. In the latter part of the study, I empirically examine the impact of remedies for wrongful dismissal on the hiring behavior of employers.;In Chapter 3, I use two approaches to provide an explanation for the use of rescission and restitution in the insurance setting and the use of termination in the employment setting. First, I develop a model where insureds have differing levels of risk of casualty, and where insureds can choose whether to be truthful or not on the application for insurance. I show that use of rescission and restitution in this model permits the existence of a separating equilibrium which is more profitable for the insurer due to the ability to charge higher premiums to higher-risk insureds.;Next, I assume that applicants are “hard-wired” to behave in certain ways. In the insurance setting, it is assumed that certain insureds are dishonest and seek insurance only for the purpose of submitting a false claim. In the employment setting, it is assumed that some workers are more productive than others. In the insurance (employment) context, I show that, under rescission and restitution, fewer honest (productive) types are needed in the population to sustain an equilibrium where insurance is issued (hiring occurs). In addition, I show that the insurance premium charged to the honest applicants is lower when rescission and restitution is used.;In Chapter 4, I examine the effect of common law changes in the employment-at-will doctrine on hiring behavior of employers. Using data on employer search behavior from the Employment Opportunities Pilot Project from 1980 and 1982, I find that employers in states with weakened employment-at-will search more extensively when filling vacancies by conducting more interviews. There was no consistent, statistically significant effect on intensive search or vacancy duration.