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A Long-term Contract with a Possibility of Dismissal for a Multitasking Agent

Meg Adachi-Sato
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Meg Adachi-Sato: Research Institute for Economics & Business Administration, Kobe University Faculty of Business Administration, JAPAN and Accountancy, Khon Kaen University, THAILAND

No DP2022-23, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: This article develops a multitask agency model in which the agent has to make investments for producing both contractible output and noncontractible intermediate input in a dynamic framework when the principal can fire the agent in the long-term wage contract. The model predicts that if the diversion cost for the principal is suffciently small, the principal prefers the long-term wage contract without firing rather than the short-term wage contract or the long-term wage contract with firing. However, if the diversion cost for the principal becomes larger, the principal may be more likely to prefer the short-term wage contract or the long-term wage contract with firing. Furthermore, if the agent's bargaining power increases, the more likely the long-term wage contracts are chosen.

Keywords: Fixed pay; Incentive pay; Dismissal wage contracts (search for similar items in EconPapers)
JEL-codes: D86 J31 J41 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2022-05
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Persistent link: https://EconPapers.repec.org/RePEc:kob:dpaper:dp2022-23

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