Building Reputation For Contract Renewal: Implications For Performance Dynamics And Contract Duration
We study how career concerns affect the dynamics of incentives in a multi-period contract, when the agent's productivity is a stochastic function of his past productivity and investment. We show that incentives are stronger and performance is higher when the contract approaches its expiry date. Contrary to common wisdom, long-term contracts may strengthen reputational effects whereas short-term contracting may be optimal when investment has persistent, long-term effects.
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Volume (Year): 12 (2014)
Issue (Month): 3 (06)
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