Olcay, Nadide Banu (2016). Dynamic incentive contracts with termination threats. Rev. Econ. Des., 20 (4). S. 255 - 289. HEIDELBERG: SPRINGER HEIDELBERG. ISSN 1434-4750
Full text not available from this repository.Abstract
We consider a dynamic moral hazard model where the principal offers a series of short-run contracts. We study the optimal mix of two alternative instruments for incentive provision: a performance based wage (a carrot) and a termination threat (a stick). At any given point in time, these instruments are substitutes in the provision of incentives. We are particularly interested in the dynamic interaction of these two instruments. Both carrot and stick are used more intensively as the agent approaches the end of his finite life. The sharing of the surplus of the relationship plays a key role: a termination threat is included in the optimal contract if and only if the agent's expected future gain from the relationship is sufficiently high, compared to the principal's expected future gain. Also, a termination threat is more likely to be optimal if output depends more on luck than on effort, if the discount factor is high, or if the agent's productivity is low. The model, provided that the optimal contract includes a termination threat, essentially provides an alternative explanation for upward-sloping wage profiles even in the absence of full-commitment.
Item Type: | Journal Article | ||||||||
Creators: |
|
||||||||
URN: | urn:nbn:de:hbz:38-255221 | ||||||||
DOI: | 10.1007/s10058-016-0192-2 | ||||||||
Journal or Publication Title: | Rev. Econ. Des. | ||||||||
Volume: | 20 | ||||||||
Number: | 4 | ||||||||
Page Range: | S. 255 - 289 | ||||||||
Date: | 2016 | ||||||||
Publisher: | SPRINGER HEIDELBERG | ||||||||
Place of Publication: | HEIDELBERG | ||||||||
ISSN: | 1434-4750 | ||||||||
Language: | English | ||||||||
Faculty: | Unspecified | ||||||||
Divisions: | Unspecified | ||||||||
Subjects: | no entry | ||||||||
Uncontrolled Keywords: |
|
||||||||
Refereed: | Yes | ||||||||
URI: | http://kups.ub.uni-koeln.de/id/eprint/25522 |
Downloads
Downloads per month over past year
Altmetric
Export
Actions (login required)
View Item |