Relational Incentive Contracts with Private Information
This paper extends the relational contract model in Levin (2003) with shocks to theagentâ€™s cost of effort (agentâ€™s type) to shocks to the principalâ€™s valuation of the agentâ€™seffort (principalâ€™s type). When optimal effort is fully pooled across agent types formultiple principal types, it is also pooled across those principal types. When optimaleffort separates some agent types for multiple principal types, it is not generally fullypooled across those principal types. But somewhat perversely, effort is then lower forsome principal type for which it is more valuable. Implications for employment andsupply relationships are discussed.
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- Jonathan Levin, 2003.
"Relational Incentive Contracts,"
American Economic Review,
American Economic Association, vol. 93(3), pages 835-857, June.
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