Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration
We study how career concerns affect the dynamics of incentives in a multi-period contract, when the agent’s productivity can evolve exogenously (random shocks) or improve endogenously through investment. We show that incentives are stronger and performance is higher when the contract approaches its expiry date. Contrary to common wisdom, long-term contracts may strengthen reputational effects whereas short-term contracting may be optimal when investment has persistent, long-term effects.
|Date of creation:||Nov 2012|
|Date of revision:|
|Publication status:||Published in Journal of the European Economic Association, vol.�12, n°3, juin 2014, p.�549-574.|
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