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Dynamic contracts when agent's quality is unknown

  • Jovanovic, Boyan

    ()

    (Department of Economics, NYU)

  • Prat, Julien

    ()

    (IAE (CSIC), Barcelona GSE and CREST, Paris.)

We solve a long-term contracting problem with symmetric uncertainty about the agent's quality, and a hidden action of the agent. As information about quality accumulates, incentives become easier to provide because the agent has less room to manipulate the principal's beliefs. This result is opposite to that in the literature on "career concerns" in which incentives via short-term contracts become harder to provide as the agent's quality is revealed over time.

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Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 9 (2014)
Issue (Month): 3 (September)
Pages:

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Handle: RePEc:the:publsh:1439
Contact details of provider: Web page: http://econtheory.org

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