Probationary Contracts in Agencies with Bilateral Asymmetric Information
AbstractThis paper examines a two-period principal and agent model where the agent's ability level is not observable to the principal and revealed to the agent only after the contract is signed. The value of the agent's output to the principal is affected by the agent's collegiality, which is unknown to the agent, but is observed by the principal. In these circumstances, with risk-neutral agents, the principal prefers a "probationary scheme" with second-period rehiring based on satisfactory first-period performance. Multiple equilibria results from this problem. However, the refinements literature provides a resolution to the multiplicity. Under certain conditions, the agent is rehired for sufficiently high first-period output; the superior agent will work harder in the first period than under recontracting, and the inferior-type agent will work less hard. The probationary scheme is shown to be Pareto superior to standard recontracting.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 22 (1989)
Issue (Month): 3 (August)
Contact details of provider:
Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
Web page: http://economics.ca/cje/
More information through EDIRC
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Regina T. Riphahn & Anja Thalmaier, 2001.
"Behavioral Effects of Probation Periods: An Analysis of Worker Absenteeism,"
Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik),
Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 221(2), pages 179-201.
- Riphahn, Regina T. & Thalmaier, Anja, 1999. "Behavioral Effects of Probation Periods: An Analysis of Worker Absenteeism," IZA Discussion Papers 67, Institute for the Study of Labor (IZA).
- Andrea Ichino & Gerd Muehlheusser, 2003.
"How often should you open the door? Optimal monitoring to screen heterogeneous agents,"
dp0319, Universitaet Bern, Departement Volkswirtschaft.
- Ichino, Andrea & Muehlheusser, Gerd, 2008. "How often should you open the door?: Optimal monitoring to screen heterogeneous agents," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 820-831, September.
- Ichino, Andrea & Muehlheusser, Gerd, 2004. "How Often Should You Open the Door? Optimal Monitoring to Screen Heterogeneous Agents," IZA Discussion Papers 987, Institute for the Study of Labor (IZA).
- Gerd Muehlheusser & Andrea Ichino, 2004. "How often should you open the door? Optimal monitoring to screen heterogeneous agents," Econometric Society 2004 North American Summer Meetings 60, Econometric Society.
- Ichino, Andrea & Muehlheusser, Gerd, 2004. "How Often Should you Open the Door? Optimal Monitoring to Screen Heterogeneous Agents," CEPR Discussion Papers 4255, C.E.P.R. Discussion Papers.
- Glazer, Amihai, 2012. "Up-or-out policies when a worker imitates another," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 432-438.
- Sami, Hind, 2009.
"Random monitoring in financing relationships,"
The Quarterly Review of Economics and Finance,
Elsevier, vol. 49(2), pages 239-252, May.
- Fredrik Andersson, 2001. "Adverse selection and bilateral asymmetric information," Journal of Economics, Springer, vol. 74(2), pages 173-195, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Prof. Werner Antweiler).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.