Nonstationary Relational Contracts with Adverse Selection
نویسنده
چکیده
We develop a model of nonstationary relational contracts in order to study internal wage dynamics. Workers are heterogeneous and each worker’s ability is both private information and fixed for all time. Learning therefore occurs within employment relationships. The inferences, however, are confounded by moral hazard: the distribution of output is determined by both the worker’s type and by his unobservable effort. Incentive provision is restricted by an inability to commit to long-term contracts. Relational contracts, which must be self-enforcing, must therefore be used. The wage dynamics in the optimal contract, which are pinned down by the tension between incentive provision and contractual enforcement, are intimately related to the learning effect. JEL: C73, D82, J41, L14
منابع مشابه
Online Appendix to “Nonstationary Relational Contracts with Adverse Selection”
Lemma A1: If a contract {wt} is self-enforcing, then there is another self-enforcing contract {w′ t} such that: (i) w′ t is nondecreasing in t, (ii) the no-shirking conditions, Ut − U1 ≥ ĉ for all t ≥ 2, do not bind for any t ≥ 2, (iii) firms’expected (discounted) profits are the same under two contracts, V1 = V ′ 1 . Proof. The proof is by construction. We show it in several steps. Step (1) (c...
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