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.
Keywords
Career concerns; contract duration; contract renewal; reputation and dynamic incentives;
JEL codes
- D21: Firm Behavior: Theory
- D23: Organizational Behavior • Transaction Costs • Property Rights
- D86: Economics of Contract: Theory
- L24: Contracting Out • Joint Ventures • Technology Licensing
- L51: Economics of Regulation
Replaces
Elisabetta Iossa, and Patrick Rey, “Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration”, TSE Working Paper, n. 12-368, November 2012.
Reference
Elisabetta Iossa, and Patrick Rey, “Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration”, Journal of the European Economic Association, vol. 12, n. 3, June 2014, pp. 549–574.
See also
Published in
Journal of the European Economic Association, vol. 12, n. 3, June 2014, pp. 549–574