Managing Intrinsic Motivation in a Long-Run Relationship

Ran Spiegler () and Kfir Eliaz

No 10056, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study a repeated principal-agent interaction, in which the principal offers a "spot" wage contract at every period, and the agent?s outside option follows a Markov process with i.i.d shocks. If the agent rejects an offer, the two parties are permanently separated. At any period during the relationship, the agent is productive if and only if his wage does not fall below a "reference point" (by more than an infinitesimal amount), which is defined as his lagged-expected wage in that period. We characterize the game?s unique subgame perfect equilibrium. The equilibrium path exhibits an aspect of wage rigidity. The agent?s total discounted rent is equal to the maximal shock value.

Keywords: Dynamic principal agent; Reference-dependence (search for similar items in EconPapers)
JEL-codes: D03 D86 (search for similar items in EconPapers)
Date: 2014-07
New Economics Papers: this item is included in nep-mic
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Related works:
Journal Article: Managing intrinsic motivation in a long-run relationship (2018)
Working Paper: Managing Intrinsic Motivation in a Long-Run Relationship (2014)
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