Dynamic contracts when the agent's quality is unknown

Julien Prat; Boyan Jovanovic

doi:10.3982/TE1439

Dynamic contracts when the agent's quality is unknown

Julien Prat
, Boyan Jovanovic

New York University

Research output: Contribution to journal › Article › peer-review

Abstract

We solve a long-term contracting problem with symmetric uncertainty about the agent's quality and a hidden action of the agent. As information about quality accumulates, incentives become easier to provide because the agent has less room to manipulate the principal's beliefs. This result is opposite to that in the literature on "career concerns" in which incentives via short-termcontracts become harder to provide as the agent's quality is revealed over time.

Original language	English
Pages (from-to)	865-914
Number of pages	50
Journal	Theoretical Economics
Volume	9
Issue number	3
DOIs	https://doi.org/10.3982/TE1439
Publication status	Published - 1 Jan 2014

Keywords

Career
Learning
Optimal contract
Principal-agent model
Private information
Reputation

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Cite this

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title = "Dynamic contracts when the agent's quality is unknown",

abstract = "We solve a long-term contracting problem with symmetric uncertainty about the agent's quality and a hidden action of the agent. As information about quality accumulates, incentives become easier to provide because the agent has less room to manipulate the principal's beliefs. This result is opposite to that in the literature on {"}career concerns{"} in which incentives via short-termcontracts become harder to provide as the agent's quality is revealed over time.",

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AB - We solve a long-term contracting problem with symmetric uncertainty about the agent's quality and a hidden action of the agent. As information about quality accumulates, incentives become easier to provide because the agent has less room to manipulate the principal's beliefs. This result is opposite to that in the literature on "career concerns" in which incentives via short-termcontracts become harder to provide as the agent's quality is revealed over time.

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KW - Optimal contract

KW - Principal-agent model

KW - Private information

KW - Reputation

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Dynamic contracts when the agent's quality is unknown

Abstract

Keywords

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