Reputation and Hierarchy in Dynamic Models of Employment
AbstractThis paper explores the nature of employment contracts in a dynamic model when workers vary by unobserved ability, and there is moral hazard on both sides of the contract. We find that even though a worker's ability is chosen from a continuum, the equilibrium contract is characterized by a hierarchy consisting of a finite number of ranks. Reputation effects are modelled as a Bayesian game, and are needed to ensure workers will not shirk. Workers are not immediately assigned to the appropriate rank, but are promoted through the ranks until they reach a level consistent with their ability.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 628.
Length: 51 pages
Date of creation: 1985
Date of revision:
Other versions of this item:
- MacLeod, W Bentley & Malcomson, James M, 1988. "Reputation and Hierarchy in Dynamic Models of Employment," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 832-54, August.
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