Multiperiod Contract Problems with VeriÃ–able and UnveriÃ–able Outputs
ã€€ã€€ Why do some employees receive only Â…xed or incentive pay, while others receive a mix of Â…xed and incentive pay? Moreover, why do the lengths of wage contracts diÂ¤er across these types of pay? This paper attempts to respond to this economic puzzle by developing a theoretical model of multiperiod contracts that incorporates short-, medium-, and long-term contracts with diÂ¤erent wage proÂ…les. We obtain diÂ¤erent combinations of these contracts as equilibria when the eÂ¢ ciency of investment in human capital changes endogenously over time.
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