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Dynamic Contracts and Learning by Doing

Julien Prat ()

No 7961, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper studies the design of optimal contracts in dynamic environments where agents learn by doing. We derive a condition under which contracts are fully incentive compatible. A closed-form solution is obtained when agents have CARA utility. It shows that human capital accumulation strengthens the power of incentives and allows the principal to provide the agent with better insurance against transitory risks.

Keywords: human capital; principal agent problem; moral hazard (search for similar items in EconPapers)
JEL-codes: D82 D83 J24 J41 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2014-02
New Economics Papers: this item is included in nep-cta, nep-dge, nep-hrm and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp7961

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