Lays vs. Wages: Contracting in the Klondike Gold Rush

• Date: 06 April 2007
• DOI: https://doi.org/10.1016/S0193-5895(06)22001-3
• Pages: 1-15
• Published date: 06 April 2007
• Author: Douglas W. Allen

LAYS VS. WAGES: CONTRACTING

IN THE KLONDIKE GOLD RUSH

Douglas W. Allen

ABSTRACT

Mine owners during the Klondike gold rush of 1898–1899 used two types

of contracts to coordinate workers and their capital: wage contracts and

lay (or share) contracts. The key interesting feature of this gold rush was

the severe climate and the constraints it placed on the miners. I show that

an ‘‘off the shelf’’ incentive model can explain the pattern of contracts,

once one understands how the extreme weather environment influenced

the behavior of miners.

INTRODUCTION

This paper examines an unusual historical episode of contract choice: the

Klondike gold rush where wage and lay (share) contracts were used in the

mines.

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The theory of contract choice has been examined in many contexts,

including gold production; however, the geological features of the Klondike

make it an interesting case to consider.

Although the Klondike rush was short, the environment was so intense

that it placed severe binding constraints on miner’s abilities to mine and steal

gold during the mining process. These strong environmental constraints had

Research in Law and Economics, Volume 22, 1–15

Copyright r2007 by Elsevier Ltd.

All rights of reproduction in any form reserved

ISSN: 0193-5895/doi:10.1016/S0193-5895(06)22001-3

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