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Productive low morale

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  • Zhao, Rui R.

Abstract

This paper models employment relationship as a repeated principal-agent problem with private evaluation. The efficient contracts exhibit correlated movements between lagged wage and current effort that are consistent with the positive feedback between pay and morale in practice. Low morale therefore is an integral part of a well-functioning relationship.

Suggested Citation

  • Zhao, Rui R., 2009. "Productive low morale," Economics Letters, Elsevier, vol. 103(1), pages 18-22, April.
  • Handle: RePEc:eee:ecolet:v:103:y:2009:i:1:p:18-22
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    References listed on IDEAS

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    1. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
    2. MacLeod, W Bentley & Malcomson, James M, 1989. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Econometrica, Econometric Society, vol. 57(2), pages 447-480, March.
    3. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    4. Fudenberg Drew & Levine David K., 1994. "Efficiency and Observability with Long-Run and Short-Run Players," Journal of Economic Theory, Elsevier, vol. 62(1), pages 103-135, February.
    5. William Fuchs, 2007. "Contracting with Repeated Moral Hazard and Private Evaluations," American Economic Review, American Economic Association, vol. 97(4), pages 1432-1448, September.
    6. Bentley W. MacLeod, 2003. "Optimal Contracting with Subjective Evaluation," American Economic Review, American Economic Association, vol. 93(1), pages 216-240, March.
    7. Fudenberg, Drew & Levine, David I & Maskin, Eric, 1994. "The Folk Theorem with Imperfect Public Information," Econometrica, Econometric Society, vol. 62(5), pages 997-1039, September.
    8. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1990. "Toward a Theory of Discounted Repeated Games with Imperfect Monitoring," Econometrica, Econometric Society, vol. 58(5), pages 1041-1063, September.
    9. Bewley, Truman F, 1995. "A Depressed Labor Market as Explained by Participants," American Economic Review, American Economic Association, vol. 85(2), pages 250-254, May.
    10. George Baker & Robert Gibbons & Kevin J. Murphy, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1125-1156.
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    Cited by:

    1. Gary-Bobo, Robert J. & Jaaidane, Touria, 2014. "Strikes and slowdown in a theory of relational contracts," European Journal of Political Economy, Elsevier, vol. 36(C), pages 89-116.
    2. Zhao, Rui R., 2012. "Renegotiation and conflict resolution in relational contracting," Games and Economic Behavior, Elsevier, vol. 75(2), pages 964-983.

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