Managing Intrinsic Motivation in a Long-Run Relationship
We study a repeated principal-agent interaction, in which the principal offers a "spot" wage contract at every period, and the agent’s outside option follows a Markov process with i.i.d shocks. If the agent rejects an offer, the two parties are permanently separated. At any period during the relationship, the agent is productive if and only if his wage does not fall below a "reference point" (by more than an infinitesimal amount), which is defined as his lagged-expected wage in that period. We characterize the game’s unique subgame perfect equilibrium. The equilibrium path exhibits an aspect of wage rigidity. The agent’s total discounted rent is equal to the maximal shock value.
|Date of creation:||Jun 2014|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.centreformacroeconomics.ac.uk/|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hanming Fang & Giuseppe Moscarini, 2003.
Cowles Foundation Discussion Papers
1422, Cowles Foundation for Research in Economics, Yale University.
- Kfir Eliaz & Ran Spiegler, 2014.
"Reference Dependence and Labor Market Fluctuations,"
NBER Macroeconomics Annual,
University of Chicago Press, vol. 28(1), pages 159 - 200.
- Kfir Eliaz & Ran Spiegler, 2013. "Reference Dependence and Labor Market Fluctuations," NBER Chapters, in: NBER Macroeconomics Annual 2013, Volume 28, pages 159-200 National Bureau of Economic Research, Inc.
- Eliaz, Kfir & Spiegler, Ran, 2012. "Reference Dependence and Labor-Market Fluctuations," CEPR Discussion Papers 8997, C.E.P.R. Discussion Papers.
- Kfir Eliaz & Rani Spiegler, 2013. "Reference-Dependence and Labor-Market Fluctuations," NBER Working Papers 19085, National Bureau of Economic Research, Inc.
- Ernst Fehr & Lorenz Goette & Christian Zehnder, 2008.
"A behavioral account of the labor market: the role of fairness concerns,"
IEW - Working Papers
394, Institute for Empirical Research in Economics - University of Zurich.
- Ernst Fehr & Lorenz Goette & Christian Zehnder, 2009. "A Behavioral Account of the Labor Market: The Role of Fairness Concerns," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 355-384, 05.
- Fehr, Ernst & Götte, Lorenz & Zehnder, Christian, 2008. "A Behavioral Account of the Labor Market: The Role of Fairness Concerns," IZA Discussion Papers 3901, Institute for the Study of Labor (IZA).
- Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
- George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
- Olivier Compte & Andrew Postlewaite, 2001.
PIER Working Paper Archive
04-023, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 May 2003.
When requesting a correction, please mention this item's handle: RePEc:cfm:wpaper:repec:cfm:wpaper:1414. 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: (Martin Hannon)
If references are entirely missing, you can add them using this form.