The optimal disclosure policy when firms offer implicit contracts
The observability of history is crucial for the sustenance of implicit (or relational) contracts. When a firm hires a sequence of short-lived workers, turnover adversely affects the observability of history-the old worker may leave the firm before communicating the history to the young. However, turnover can also enhance profits if matching gains can be extracted up front. Disclosure of the workers' productivity information affects turnover by mitigating adverse selection. Thus, the optimal disclosure policy trades off matching efficiency with the sustainability of implicit contracts. I show that (i) opaqueness can be optimal only for firms with moderate reputation concerns, and (ii) an opaque firm's profit may decrease with its reputation concern. Copyright (c) 2010, RAND.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 41 (2010)
Issue (Month): 3 ()
|Contact details of provider:|| Postal: |
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0741-6261
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/journal.asp?ref=0741-6261|
When requesting a correction, please mention this item's handle: RePEc:bla:randje:v:41:y:2010:i:3:p:549-573. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.