Contracting with Type-Dependent Naïveté

Matteo Foschi ()

No 16/03, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: I analyse the optimal contracting behaviour of an employer who faces workers with different, incorrect beliefs about their own productivity. While the literature has focused mostly on the exploitative (when the principal knows agents’ types, Eliaz and Spiegler, 2006) and speculative (when the principal has priors on agents’ types, Eliaz and Spiegler, 2008) aspects of contracts, I introduce the assumption that workers’ naïveté depends on their actual productivity level. The employer uses this information to form posteriors on agents’productivity and design more efficient contracts. In particular, I highlight the employer’s trade-off between exploiting strongly naïve workers and designing efficient contracts for the most widespread type of worker, according to her posteriors.

Keywords: Self-Awareness; Naïveté; Contract; Screening; Non-Common Priors; Mechanism Design; Multidimensional Types. (search for similar items in EconPapers)
JEL-codes: D42 D82 D84 D86 J41 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-cta, nep-lma and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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