Dynamic contracts when the agent's quality is unknown

Julien Prat, Boyan Jovanovic

    Research output: Contribution to journalArticle

    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 languageEnglish (US)
    Pages (from-to)865-914
    Number of pages50
    JournalTheoretical Economics
    Volume9
    Issue number3
    DOIs
    StatePublished - 2014

    Keywords

    • Career
    • Learning
    • Optimal contract
    • Principal-agent model
    • Private information
    • Reputation

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)

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