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Multiperiod Contract Problems with VeriÖable and UnveriÖable Outputs

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  • Kazuya Kamiya

    (Faculty of Economics, University of Tokyo)

  • Meg Adachi-Sato

    (Royal Melbourne Institute of Technology University)

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    Abstract

       Why do some employees receive only …xed or incentive pay, while others receive a mix of …xed and incentive pay? Moreover, why do the lengths of wage contracts di¤er across these types of pay? This paper attempts to respond to this economic puzzle by developing a theoretical model of multiperiod contracts that incorporates short-, medium-, and long-term contracts with di¤erent wage pro…les. We obtain di¤erent combinations of these contracts as equilibria when the e¢ ciency of investment in human capital changes endogenously over time.

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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2013/2013cf896.pdf
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    Bibliographic Info

    Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-896.

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    Length: 45 pages
    Date of creation: Jul 2013
    Date of revision:
    Handle: RePEc:tky:fseres:2013cf896

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    1. Drew Fudenberg & Bengt Holmstrom & Paul Milgrom, 1987. "Short-Term Contracts and Long-Term Agency Relationships," Working papers 468, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Georg Nöldeke & Klaus M. Schmidt, 1992. "Option Contracts and Renegotiation - A Solution to the Hold-Up Problem," Discussion Paper Serie A 417, University of Bonn, Germany, revised Aug 1993.
    3. HOLMSTROM, Bengt, . "Moral hazard and observability," CORE Discussion Papers RP -379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
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