We study how career concerns affect the dynamics of incentives in a multi-period contract, when the agent’s productivity is a stochastic function of his past productivity and investment. We show that incentives are stronger and performance is higher when the contract approaches its expiry date. Contrary to common wisdom, long-term contractsmay strengthen reputational effects whereas shortterm contracting may be optimal when investment has persistent, long-term effects.
BUILDING REPUTATION FOR CONTRACT RENEWAL: IMPLICATIONS FOR PERFORMANCE DYNAMICS AND CONTRACT DURATION
IOSSA, ELISABETTA;
2014
Abstract
We study how career concerns affect the dynamics of incentives in a multi-period contract, when the agent’s productivity is a stochastic function of his past productivity and investment. We show that incentives are stronger and performance is higher when the contract approaches its expiry date. Contrary to common wisdom, long-term contractsmay strengthen reputational effects whereas shortterm contracting may be optimal when investment has persistent, long-term effects.
File in questo prodotto:
Non ci sono file associati a questo prodotto.
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
