Managing Intrinsic Motivation in a Long-Run Relationship

Kfir Eliaz and Ran Spiegler ()

No 1414, Discussion Papers from Centre for Macroeconomics (CFM)

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.

Pages: 11 pages
Date: 2014-06
New Economics Papers: this item is included in nep-cbe, nep-cta, nep-hpe, nep-hrm and 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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