ABSTRACT

The theory of implicit contracts constitutes one of the first Keynesian attempts at retorting to Lucas while accepting his microfoundations requirement. An interesting example of ‘simultaneous discovery’, it was developed independently at more or less the same time by different authors, Azariadis (1975), Baily (1974) and Gordon (1974). My analysis will be limited to Azariadis’ model as it is probably the most influential of these three papers.