Labor contracts are a particularly interesting area for research in transaction cost economics. The reason is that many of the usual methods used to mitigate the appropriation of the rents from investments in specific assets are not available. In particular, slavery is frowned upon and employees are generally free to change employers. Contractual solutions can be employed to mitigate these problems, but such efforts suffer from the same limitations as contractual solutions in other markets.

Empirical approaches developed (in the main) by Heckman and McFadden give us an opportunity to examine the hiring of employees through a transaction cost lens. Levels of training, incentive pay, formal contracts, full time employment, etc., can all be viewed as dependent variables which will be influenced by specific human capital, complexity, bounded rationality, information asymmetry, etc. This session will examine the application of empirical models designed to deal with discrete choice to examine these issues, and will argue that there is a substantial need for novel research by careful empirical researchers.