Economics at your fingertips  

Optimal self-enforcement and termination

Cheng Wang and Youzhi Yang

Journal of Economic Dynamics and Control, 2019, vol. 101, issue C, 161-186

Abstract: We study a principal-agent problem where the agent receives a stochastic outside opportunity (offer) each period, and he cannot commit to the ongoing contractual relationship. Termination, which is costly, allows the principal to go back to an external market to hire a new agent. The principal responds strategically to the agent’s outside offers, choosing optimally between retaining the agent, which must be self-enforced, and terminating him, which then ends the current contract. The model generates both voluntary and involuntary terminations, and dynamics and stationarity outcomes that are of interest especially for understanding employment relationships with on-the-job search.

Keywords: Optimal contracting; Outside opportunities; Self-enforcement; Termination (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-08-10
Handle: RePEc:eee:dyncon:v:101:y:2019:i:c:p:161-186