Long-Term Employment Relations when Agents are Present Biased

Florian Englmaier, Matthias Fahn and Marco Schwarz

No 6159, CESifo Working Paper Series from CESifo

Abstract: We analyze how agents’ present bias affects optimal contracting in an infinite-horizon employment setting. The principal maximizes profits by offering a menu of contracts to naive agents: a virtual contract - which agents plan to choose in the future - and a real contract which they end up choosing. This virtual contract motivates the agent and allows the principal to keep the agent below his outside option. Moreover, under limited liability, implemented effort can be inefficiently high. With a finite time horizon, the degree of exploitation of agents decreases over the life-cycle. While the baseline model abstracts from moral hazard, we show that the result persists also when allowing for non-contractible effort.

Keywords: employment relations; dynamic contracting; present bias (search for similar items in EconPapers)
JEL-codes: D03 D21 J31 M52 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Long-Term Employment Relations When Agents are Present Biased (2018)
Working Paper: Long-Term Employment Relations when Agents Are Present Biased (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6159

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