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Implicit Contracts: Two Different Approaches

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Author Info
Oliver Gürtler (Oliver Gürtler, Department of Economics, BWL II, University of Bonn, Adenauer- allee 24-42, D-53113 Bonn, Germany. Tel.:+49-228-739214, Fax:+49-228-739210; E-mail: oliver.guertler@uni-bonn.de)
Abstract

In this paper, I compare two different approaches to model implicit contracting, the infinite-horizon approach typically used in the literature and afinite-horizon approach building on an adverse-selection model. I demonstrate that even the most convincing result of the infinite-horizon approach, namely that implicit contracting is improved, if the discountrate is lowered, does not carry over to the alternative modeling approach. Predictions of the first approach should therefore be handled with care and subject to athorough reinvestigation.

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Publisher Info
Paper provided by SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Papers with number 110.

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Date of creation: Apr 2006
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Handle: RePEc:trf:wpaper:110

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Related research
Keywords: Trust; finite horizon; infinite horizon; discounting; implicit contracting;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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References listed on IDEAS
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