Implicit contracts

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Implicit contracts are agreements or understandings between two parties that are not expressed or written down. These agreements are often established based on past interactions or behaviors of the parties involved.

In economics, implicit contracts refer to long-term informal agreements between employers and employees regarding wages, working conditions, and job security. These contracts are not legally binding but are based on expectations of reciprocity and fairness. Implicit contracts are established when both parties rely on each other for continued success and stability.

For example, an employee may work longer hours, take on additional responsibilities, or forego salary increases in exchange for job security and potential future opportunities for advancement. Similarly, an employer may invest in training and development programs for employees in exchange for loyalty and commitment to the company.

Implicit contracts can be beneficial because they help to create a sense of trust and stability between parties. However, they can also be problematic if one party fails to meet the expectations of the other or if circumstances change significantly.
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