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Monotone Contracts

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  • Daniel Bird
  • Alexander Frug

Abstract

We develop a framework for deriving dynamic monotonicity results in long-term stochastic contracting problems with symmetric information. Specifically, we construct a notion of concave separable activity that encompasses many prevalent contractual components (e.g., wage, effort, level of production, etc.). We then provide a tight condition under which such activities manifest a form of seniority in every contracting problem in which they are present: any change that occurs in the level of the activity over time favors the agent. Our work unifies and significantly generalizes many existing results and can also be used to establish monotonicity results in other settings of interest.

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  • Daniel Bird & Alexander Frug, 2019. "Monotone Contracts," Working Papers 1085, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1085
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    Cited by:

    1. Forand, Jean Guillaume & Zapal, Jan, 2020. "Production priorities in dynamic relationships," Theoretical Economics, Econometric Society, vol. 15(3), July.

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    More about this item

    Keywords

    dynamic contracting; activities; seniority;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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