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A Tenure-Clock Problem

Listed author(s):
  • Chia-Hui Chen
  • Junichiro Ishida

We consider a "tenure-clock problem" in which a principal may set a deadline by which she needs to evaluate an agent's ability and decides whether to promote him or not. We embed this problem in a continuous-time model with both hidden action and hidden information, where the principal must induce the agent to exert effort to facilitate her learning process. The value of committing to a deadline is examined in this environment, and factors that make the deadline more profitable are identified. Our simple framework allows us to obtain a complete characterization of the equilibrium, both with and without commitment, and provides insight into why up-or-out contracts are prevalent in some industries while they are almost non-existent in others.

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File URL: http://www.iser.osaka-u.ac.jp/library/dp/2015/DP0919.pdf
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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0919.

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Date of creation: Jan 2015
Handle: RePEc:dpr:wpaper:0919
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  1. Gustavo Manso, 2011. "Motivating Innovation," Journal of Finance, American Finance Association, vol. 66(5), pages 1823-1860, October.
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  9. Arthur Campbell & Florian Ederer & Johannes Spinnewijn, 2014. "Delay and Deadlines: Freeriding and Information Revelation in Partnerships," American Economic Journal: Microeconomics, American Economic Association, vol. 6(2), pages 163-204, May.
  10. repec:cwl:cwldpp:1726rrr is not listed on IDEAS
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  12. Suman Ghosh & Michael Waldman, 2010. "Standard promotion practices versus up-or-out contracts," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 301-325.
  13. Chia-Hui Chen, 2012. "Name Your Own Price at Priceline.com: Strategic Bidding and Lockout Periods," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1341-1369.
  14. Brendan O'Flaherty & Aloysius Siow, 1992. "On the Job Screening, up or out Rules, and Firm Growth," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 346-368, May.
  15. Marina Halac & Navin Kartik & Qingmin Liu, 2016. "Optimal Contracts for Experimentation," Review of Economic Studies, Oxford University Press, vol. 83(3), pages 1040-1091.
  16. John Abowd & Francis Kramarz & Sebastien Perez-Duarte & Ian Schmutte, 2009. "A Formal Test of Assortative Matching in the Labor Market," Working Papers 09-40, Center for Economic Studies, U.S. Census Bureau.
  17. Waldman, Michael, 1990. "Up-or-Out Contracts: A Signaling Perspective," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 230-250, April.
  18. Canice Prendergast, 1993. "The Role of Promotion in Inducing Specific Human Capital Acquisition," The Quarterly Journal of Economics, Oxford University Press, vol. 108(2), pages 523-534.
  19. Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
  20. William Fuchs & Andrzej Skrzypacz, 2013. "Bargaining with Deadlines and Private Information," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 219-243, November.
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