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 contracts may strengthen reputational effects whereas short-term contracting may be optimal when investment has persistent, long-term effects.
Iossa, E., Rey, P. (2014). Building reputation for contract renewal: implications for performance dynamic and contract duration. JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION, 12(3), 549-574 [10.1111/jeea.12075].
Building reputation for contract renewal: implications for performance dynamic and contract duration
IOSSA, ELISABETTA;
2014-01-01
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 contracts may strengthen reputational effects whereas short-term contracting may be optimal when investment has persistent, long-term effects.| File | Dimensione | Formato | |
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IOSSA REY Building Reputation for Contract Renewal JEEA 2014.pdf
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