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Multiperiod Contract Problems with VeriÖable and UnveriÖable Outputs


  • Kazuya Kamiya

    (Faculty of Economics, University of Tokyo)

  • Meg Adachi-Sato

    (Royal Melbourne Institute of Technology University)


   Why do some employees receive only …xed or incentive pay, while others receive a mix of …xed and incentive pay? Moreover, why do the lengths of wage contracts di¤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 di¤erent wage pro…les. We obtain di¤erent combinations of these contracts as equilibria when the e¢ ciency of investment in human capital changes endogenously over time.

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  • Kazuya Kamiya & Meg Adachi-Sato, 2013. "Multiperiod Contract Problems with VeriÖable and UnveriÖable Outputs," CIRJE F-Series CIRJE-F-896, CIRJE, Faculty of Economics, University of Tokyo.
  • Handle: RePEc:tky:fseres:2013cf896

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    References listed on IDEAS

    1. Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990. "Short-term contracts and long-term agency relationships," Journal of Economic Theory, Elsevier, vol. 51(1), pages 1-31, June.
    2. Eric Maskin & Jean Tirole, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 83-114.
    3. Georg Noldeke & Klaus M. Schmidt, 1995. "Option Contracts and Renegotiation: A Solution to the Hold-Up Problem," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 163-179, Summer.
    4. Bengt Holmström, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 169-182.
    5. 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.
    6. Eric Maskin & Jean Tirole, 1999. "Two Remarks on the Property-Rights Literature," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 139-149.
    7. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
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    Cited by:

    1. 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.
    2. Meg Adachi-Sato, 2013. "Incentive Pay that Causes Inefficient Managerial Replacement ," CIRJE F-Series CIRJE-F-890, CIRJE, Faculty of Economics, University of Tokyo.

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