Coercion, Obnoxious Tasks, and Economic Efficiency

Incomplete contracts and inadequate enforcement of labor rights, together with the asymmetry of power between a worker and her employer, create an environment where the employer can forcibly extract additional services (e.g., unpaid overtime or sexual favors) from the worker beyond the mutually agreed terms of exchange. We show that coercive impositions can coexist with voluntary transactions in the labor market, and that a positive incidence of coercion can adversely affect the efficiency of the corresponding market transactions. This may justify banning the legal market for the additional service if it is regarded as obnoxious by society.