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New and Revised Results for 'Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration'

Author

Listed:
  • Vanessa Kummer

    (University of Zurich)

  • Maik Meusel

    (University of Zurich)

  • Philipp Renner

    (Stanford University - The Hoover Institution on War, Revolution and Peace)

  • Karl Schmedders

    (University of Zurich)

Abstract

In this paper we present some new results for the dynamic agent model by Iossa and Rey (2014, "Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration,'' Journal of the European Economic Association, 12, 549−574) while also correcting some errors in that article. Iossa and Rey study the performance of an agent who repeatedly receives multi-period contracts and determine the optimal duration of such contracts in the context of an infinitely repeated multi-period agent model. We amend the characterization of the unique Markov perfect equilibrium for this model. In addition, we review the original welfare analysis of the model and either provide corrected proofs when possible or provide counterexamples. Our counterexamples overturn the main comparative statics results of the original analysis. We demonstrate that both the agent's optimal investment decision and the optimal contract duration depend non-monotonically on the information persistence and the agent's discount factor. In the final part of the analysis, we establish new results on the agent's optimal investment decision.

Suggested Citation

  • Vanessa Kummer & Maik Meusel & Philipp Renner & Karl Schmedders, 2016. "New and Revised Results for 'Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration'," Swiss Finance Institute Research Paper Series 16-32, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1632
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    More about this item

    Keywords

    Career concerns; dynamic agent model; multi-period contracts;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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