Coexistence of long-term and short-term contracts

نویسندگان

  • Inés Macho-Stadler
  • David Pérez-Castrillo
  • Nicolás Porteiro
چکیده

We study the length of agreements in a market in which infinitely-lived firms contract with agents that live for two periods. Firms differ in the expected values of their projects, as do workers in their abilities to manage projects. Worker effort is not contractible and worker ability is revealed during the relationship. The market dictates the trade-off between sorting and incentives. Shortand long-term contracts often coexist: The best firms always use short-term contracts to hire highability senior workers, firms with less profitable projects use short-term contracts to save on the cost of hiring junior workers, whereas intermediate firms use long-term agreements to provide better incentives to their workers. We relate our results to the optimal assignment literature that follows Becker (1973). ∗We are grateful to the participants at seminars at CREST (Paris), U de Salamanca and U Autònoma de Barcelona and at SAE 2011 (Málaga), 20iDEA 2011 (Barcelona), Games 2012 (Istanbul), CICGTA 2012 (Qingdao), SAET 2013 (Paris), as well as four reviewers and the co-editor for their insightful comments. Financial support from Ministerio de Ciencia y Tecnología (ECO2008-04321, ECO2009-07616 and ECO2012-31962), Generalitat de Catalunya (2009SGR-169), Junta de Andalucía (SEJ-02936 and SEJ04992), Severo Ochoa Programme (SEV2011-0075), and ICREA Academia is gratefully acknowledged. †Corresponding author. Universitat Autonoma de Barcelona and Barcelona GSE; Dept. Economía e Hist. Económica. UAB edifici B; E-08193 Bellaterra (Barcelona, Spain). Email: [email protected]. ‡Universitat Autonoma de Barcelona and Barcelona GSE; Dept. Economía e Hist. Económica. Email: [email protected]. §Universidad Pablo Olavide; Department of Economics. ¶Nico passed away in April 2012. He was a talented, honest, brave, and enthusiastic friend. We miss him deeply.

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عنوان ژورنال:
  • Games and Economic Behavior

دوره 86  شماره 

صفحات  -

تاریخ انتشار 2014