BUILDING REPUTATION FOR CONTRACT RENEWAL: IMPLICATIONS FOR PERFORMANCE DYNAMICS AND CONTRACT DURATION

Elisabetta Iossa and Patrick Rey

Journal of the European Economic Association, 2014, vol. 12, issue 3, 549-574

Abstract: We study how career concerns affect the dynamics of incentives in a multi-period contract, when the agent's productivity is a stochastic function of his past productivity and investment. We show that incentives are stronger and performance is higher when the contract approaches its expiry date. Contrary to common wisdom, long-term contracts may strengthen reputational effects whereas short-term contracting may be optimal when investment has persistent, long-term effects.

Date: 2014
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Related works:
Working Paper: Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration (2013)
Working Paper: Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration (2012)
Working Paper: Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration (2012)
Working Paper: Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jeurec:v:12:y:2014:i:3:p:549-574

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