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Optimal Contracts with Randomly Arriving Tasks

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  • Daniel Bird
  • Alexander Frug

Abstract

Workers are rarely assigned to perform the same task throughout their career. Instead, their assignments may change randomly over time to comply with the fluctuating needs of the organisation where they are employed. In this article, we show that this typical randomness in workplaces has a striking effect on the structure of long-term employment contracts. In particular, simple intertemporal variability in the worker’s tasks is sufficient to generate a rich promotion-based dynamics in which, occasionally, the worker receives a (permanent) wage raise and his future work requirements are reduced.

Suggested Citation

  • Daniel Bird & Alexander Frug, 2021. "Optimal Contracts with Randomly Arriving Tasks," The Economic Journal, Royal Economic Society, vol. 131(637), pages 1905-1918.
    • Handle: RePEc:oup:econjl:v:131:y:2021:i:637:p:1905-1918.
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    File URL: http://hdl.handle.net/10.1093/ej/ueaa125
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    References listed on IDEAS

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    Cited by:

    1. Baccara, Mariagiovanna & Lee, SangMok & Yariv, Leeat, 2023. "Task allocation and on-the-job training," Journal of Economic Theory, Elsevier, vol. 207(C).

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    More about this item

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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