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Optimal contracts with randomly arriving tasks

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Abstract

Workers rarely perform exactly the same tasks every day. Instead, their daily workload may change randomly over time to comply with the uctuating needs of the organiza- tion where they are employed. In this paper, we show that this typical randomness in workplaces has a striking e ect on the structure of long-term employment contracts. In particular, simple intertemporal variability in the worker's tasks is sucient to gen- erate a rich promotion-based dynamics in which, occasionally, the worker receives a (permanent) wage raise and his future work requirements are reduced.

Suggested Citation

  • Daniel Bird & Alexander Frug, 2020. "Optimal contracts with randomly arriving tasks," Economics Working Papers 1690, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1690
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    2. Baccara, Mariagiovanna & Lee, SangMok & Yariv, Leeat, 2023. "Task allocation and on-the-job training," Journal of Economic Theory, Elsevier, vol. 207(C).

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    Keywords

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    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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