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A Tenure-Clock Problem

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  • Chia-Hui Chen
  • Junichiro Ishida

Abstract

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.

Suggested Citation

  • Chia-Hui Chen & Junichiro Ishida, 2015. "A Tenure-Clock Problem," ISER Discussion Paper 0919, Institute of Social and Economic Research, Osaka University.
  • Handle: RePEc:dpr:wpaper:0919
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    File URL: http://www.iser.osaka-u.ac.jp/library/dp/2015/DP0919.pdf
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    References listed on IDEAS

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    14. 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.
    15. Kathryn E. Spier, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 93-108.
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    17. 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.
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    Cited by:

    1. Chia-Hui Chen & Junichiro Ishida, 2015. "Hierarchical Experimentation," ISER Discussion Paper 0949, Institute of Social and Economic Research, Osaka University.

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