Occasional Paper

Structural Adjustment, the Psychological Contract and Discretionary Cooperation of Labour

“The study proposes a model of understanding and ensuring commitment and discretionary
cooperation by suggesting that on-going economic activities such as formal employment are essentially social exchange activities whose outcome are never completely rationally determined. There is for instance always an area of discretion that is not enforceable through legal or
economic contracts because doing so would increase marginal costs beyond marginal utility. This is the area where an agent such as an employee acquires property rights over his/her labour and which are then exchanged at her/his discretion. This is where behavioral considerations such as moods or temperament control the final outcome of an employment relationship.”