New and Revised Results for 'Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration'

Vanessa Kummer, Maik Meusel, Philipp Renner and Karl Schmedders
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Vanessa Kummer: University of Zurich
Maik Meusel: University of Zurich

No 16-32, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: In this paper we present some new results for the dynamic agent model by Iossa and Rey (2014, "Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration,'' Journal of the European Economic Association, 12, 549−574) while also correcting some errors in that article. Iossa and Rey study the performance of an agent who repeatedly receives multi-period contracts and determine the optimal duration of such contracts in the context of an infinitely repeated multi-period agent model. We amend the characterization of the unique Markov perfect equilibrium for this model. In addition, we review the original welfare analysis of the model and either provide corrected proofs when possible or provide counterexamples. Our counterexamples overturn the main comparative statics results of the original analysis. We demonstrate that both the agent's optimal investment decision and the optimal contract duration depend non-monotonically on the information persistence and the agent's discount factor. In the final part of the analysis, we establish new results on the agent's optimal investment decision.

Keywords: Career concerns; dynamic agent model; multi-period contracts (search for similar items in EconPapers)
JEL-codes: D21 D23 D86 L24 L51 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2016-05
New Economics Papers: this item is included in nep-cse, nep-cta, nep-hrm and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1632

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