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Monotone contracts

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Abstract

A common feature of dynamic interactions is that the environment in which they occur typically changes, perhaps stochastically, over time. We consider a general uctuating contracting environment with symmetric information, and identify a systematic e ect of the uctuations in the environment on optimal contracts. We develop a notion of a separable activity that corresponds to a large class of contractual components, and provide a tight condition under which these components manifest a form of seniority: any change that occurs in these components over time, under an optimal contract, favors the agent. We illustrate how our results can be applied in various economic settings.

Suggested Citation

  • Daniel Bird & Alexander Frug, 2019. "Monotone contracts," Economics Working Papers 1647, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1647
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    Cited by:

    1. Forand, Jean Guillaume & Zapal, Jan, 2020. "Production priorities in dynamic relationships," Theoretical Economics, Econometric Society, vol. 15(3), July.

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    More about this item

    Keywords

    Dynamic contracting; stochastic opportunities.;

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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