Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration
Due to technological progress, recent performance is often more informative about future performance prospects than is older performance. We incorporate information decay in a career concern model in which performance depends on type and effort and contract renewal is based on the performance record. In contrast with the career concern literature (e.g. Lewis, 1986; RJE), contractors work harder when the project approaches renewal date and when their reputation is better. Productive investment are crowded out by window-dressing effort in late contract periods, but it is boosted in early periods. More frequent contract renewals strengthen reputational effects and result in improved performance if the relative cost of investment is low, but otherwise long-term contracts induce more effort. Our results are corroborated by some empirical studies showing that performance improves as the contract approaches renewal date.
|Date of creation:||28 May 2010|
|Date of revision:||28 May 2010|
|Contact details of provider:|| Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma|
Web page: http://www.ceistorvergata.it
More information through EDIRC
|Order Information:|| Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma|
Web: http://www.ceistorvergata.it Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fudenberg, Drew & Tirole, Jean, 1994.
"A Theory of Income and Dividend Smoothing Based on Incumbency Rents,"
IDEI Working Papers
34, Institut d'Économie Industrielle (IDEI), Toulouse.
- Fudenberg, Drew & Tirole, Jean, 1995. "A Theory of Income and Dividend Smoothing Based on Incumbency Rents," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 75-93, February.
- Tirole, Jean & Fudenberg, Drew, 1995. "A Theory of Income and Dividend Smoothing Based on Incumbency Rents," Scholarly Articles 3160494, Harvard University Department of Economics.
- Eshien Chong & Freddy Huet & Stéphane Saussier, 2006.
"Auctions, Ex Post Competition And Prices: The Efficiency Of Public-Private Partnerships ,"
Annals of Public and Cooperative Economics,
Wiley Blackwell, vol. 77(4), pages 521-554, December.
- Chong Eshien & Freddy Huet & Stéphane Saussier, 2006. "Auctions, ex-post competition and prices : the efficiency of public-private partnerships," Post-Print halshs-00479482, HAL.
- Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
- George J. Mailath & Larry Samuelson, 2001.
"Who Wants a Good Reputation?,"
Review of Economic Studies,
Oxford University Press, vol. 68(2), pages 415-441.
- George J. Mailath & Larry Samuelson, . "Who Wants a Good Reputation?," Penn CARESS Working Papers a3e3219aee004bd237f8112f9, Penn Economics Department.
- George J. Mailath & Larry Samuelson, 2000. "Who Wants a Good Reputation?," CARESS Working Papres sell-rep, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Mailath,G.J. & Samuelson,L., 1998. "Who wants a good reputation?," Working papers 19, Wisconsin Madison - Social Systems.
- George J. Mailath & Larry Samuelson, . ""Who Wants a Good Reputation?''," CARESS Working Papres 98-12, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Kevin J. Stiroh, 2007. "Playing For Keeps: Pay And Performance In The Nba," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 145-161, 01.
- Matthew Ellman, 2006. "The optimal length of contracts with application to outsourcing," Economics Working Papers 965, Department of Economics and Business, Universitat Pompeu Fabra.
- Nicola Doni, 2006. "The Importance Of Reputation In Awarding Public Contracts," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 77(4), pages 401-429, December.
- Stéphane SAUSSIER, 1999. "Transaction Cost Economics and Contract Duration : An Empirical Analysis of EDF Coal Contracts," Discussion Papers (REL - Recherches Economiques de Louvain) 1999011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- 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 168-85, March.
- Dilip Abreu & Paul Milgrom & David Pearce, 1997.
"Information and timing in repeated partnerships,"
Levine's Working Paper Archive
636, David K. Levine.
- Tracy R. Lewis, 1986. "Reputation and Contractual Performance in Long-Term Projects," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 141-157, Summer.
- Kim, In-Gyu, 1998. "A model of selective tendering: Does bidding competition deter opportunism by contractors?," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(4), pages 907-925.
- Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 659-679.
- Masten, Scott E & Crocker, Keith J, 1985. "Efficient Adaptation in Long-term Contracts: Take-or-Pay Provisions for Natural Gas," American Economic Review, American Economic Association, vol. 75(5), pages 1083-93, December.
- Richard A. Lambert, 1983. "Long-Term Contracts and Moral Hazard," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 441-452, Autumn.
- Roland Strausz, . "Planned Obsolescence and the Provision of Unobservable Quality," Papers 028, Departmental Working Papers.
- Affuso, Luisa & Newbery, David M G, 2000. "Investment, Reprocurement and Franchise Contract Length in the British Railway Industry," CEPR Discussion Papers 2619, C.E.P.R. Discussion Papers.
- Oriana Bandiera, 2007. "Contract Duration and Investment Incentives: Evidence from Land Tenancy Agreements," Journal of the European Economic Association, MIT Press, vol. 5(5), pages 953-986, 09.
- Ellen M. Pint, 1992. "Price-Cap versus Rate-of-Return Regulation in a Stochastic-Cost Model," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 564-578, Winter.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, March.
When requesting a correction, please mention this item's handle: RePEc:rtv:ceisrp:155. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Barbara Piazzi)
If references are entirely missing, you can add them using this form.