We propose a theory of free movement of goods and labor between two economies in the presence of moral hazard. Each country produces two final goods where the productive efforts of workers cannot be perfectly observed, or verified only in the complex industry. We show that national institutional...

We propose a theory of free movement of goods and labor between two economies in the presence of moral hazard. Each country produces two final goods where the productive efforts of workers cannot be perfectly observed, or verified only in the complex industry. We show that national institutional...

This paper proposes a theory of free movement of goods and labor between two large economies with imperfect labor contracts. Each country is incompletely specialized in producing two final goods that differ in their complexity of production. The most complex good is produced by workers and...