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Combinations of Different Length Contracts in a Multiperiod Model: Short, Medium and Long-term Contracts

Author

Listed:
  • Meg Adachi-Sato

    (School of Economics, Finance and Marketing, Royal Melbourne Institute of Technology University)

  • Kazuya Kamiya

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

This paper develops a dynamic contracting model with verifi able and unverifi able outputs. We prove the following properties of equilibrium wage contracts, which are new to the literature: (i) combinations of dfferent length contracts can become equilibria, (ii) medium-term contracts can be included in the combinations, and (iii) equilibrium wage pro le dffers by the way different length contracts are combined. We also investigate a general mechanism, which includes menu and option contracts, and show that no mechanism can perform better than simple wage contracts in our environment. In short, above properties remain valid under general mechanisms.

Suggested Citation

  • Meg Adachi-Sato & Kazuya Kamiya, 2018. "Combinations of Different Length Contracts in a Multiperiod Model: Short, Medium and Long-term Contracts," Discussion Paper Series DP2018-05, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2018-05
    as

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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2018-05.pdf
    File Function: First version, 2018
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    References listed on IDEAS

    as
    1. Sergei Guriev & Dmitriy Kvasov, 2005. "Contracting on Time," American Economic Review, American Economic Association, vol. 95(5), pages 1369-1385, December.
    2. James A. Mirrlees, 1976. "The Optimal Structure of Incentives and Authority Within an Organization," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 105-131, Spring.
    3. Bernard Salanié, 2005. "The Economics of Contracts: A Primer, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262195259, December.
    4. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    5. Meg Adachi-Sato & Kazuya Kamiya, 2011. "A Dynamic Multitask Model: Fixed Wages, No Externalities, and Holdup Problems," CIRJE F-Series CIRJE-F-825, CIRJE, Faculty of Economics, University of Tokyo.
    6. Rey, Patrick & Salanie, Bernard, 1990. "Long-term, Short-term and Renegotiation: On the Value of Commitment in Contracting," Econometrica, Econometric Society, vol. 58(3), pages 597-619, May.
    7. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-185, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Dffering length contracts; Unverifi able outputs; Unveri fiable investments; Unveri fiable ability; Holdup problems;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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