Monotone contracts

Daniel Bird and Alexander Frug

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: A common feature of dynamic interactions is that the environment in which they occur typically changes, perhaps stochastically, over time. We consider a general uctuating contracting environment with symmetric information, and identify a systematic e ect of the uctuations in the environment on optimal contracts. We develop a notion of a separable activity that corresponds to a large class of contractual components, and provide a tight condition under which these components manifest a form of seniority: any change that occurs in these components over time, under an optimal contract, favors the agent. We illustrate how our results can be applied in various economic settings.

Keywords: Dynamic contracting; stochastic opportunities. (search for similar items in EconPapers)
JEL-codes: D86 (search for similar items in EconPapers)
Date: 2019-04
New Economics Papers: this item is included in nep-cta, nep-mic and nep-ore
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Related works:
Working Paper: Monotone Contracts (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1647

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