A Tenure-Clock Problem

Chia-Hui Chen and Junichiro Ishida

ISER Discussion Paper from Institute of Social and Economic Research, The University of Osaka

Abstract: We consider a "tenure-clock problem" in which a principal may set a deadline by which she needs to evaluate an agent's ability and decides whether to promote him or not. We embed this problem in a continuous-time model with both hidden action and hidden information, where the principal must induce the agent to exert effort to facilitate her learning process. The value of committing to a deadline is examined in this environment, and factors that make the deadline more profitable are identified. Our simple framework allows us to obtain a complete characterization of the equilibrium, both with and without commitment, and provides insight into why up-or-out contracts are prevalent in some industries while they are almost non-existent in others.

Date: 2015-01
New Economics Papers: this item is included in nep-hrm and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:dpr:wpaper:0919

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