This paper shows that the ratchet effect can occur in incentive contracts with ex ante symmetric information, in a two period principal-agent model in which the agent's productivity is unknown to the principal and the agent at the time when the first-period contract is signed. When the first period output is realized, the agent becomes more informed than the principal because the agent's effort is not observable to the principal. Thus, if commitment cannot be made, the agent has an incentive to underproduce in the first period in order to induce a less demanding contract in the second period. We find that the agent's incentive to underproduce leads to the uninducibility of any effort level of the agent in the first period. [L 14]
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