TY - JOUR
T1 - Recursive contracts, firm longevity, and rat races
T2 - An experimental analysis
AU - Bardsley, Peter
AU - Erkal, Nisvan
AU - Nikiforakis, Nikos
AU - Wilkening, Tom
N1 - Funding Information:
We thank the co-editor (Joerg Oechssler), two anonymous referees, Charles Noussair, Charles Plott, Katerina Sherstyuk, Larry Samuelson, Nori Tarui, conference participants at the 2009 North-American ESA Conference (Tuscon, AZ, USA), the 5th Annual Conference on Economic Growth and Development (ISI, Delhi, India), and seminar participants at the University of New South Wales and University of Tasmania for valuable comments. We gratefully acknowledge the financial support of the Australian Research Council.
PY - 2013/7
Y1 - 2013/7
N2 - This paper reports the results from a laboratory experiment which investigates the structure of contracts that emerge in overlapping-generation firms where future ownership is a perquisite of employment. Workers in the young generation are offered employment contracts designed by the firms' owners who belong to the old generation. When old, employed workers are granted ownership rights as long as the firm continues to operate. In line with theoretical predictions, the results indicate that as firm longevity increases, the recursive nature of the contracts leads to a rat race characterized by low wages, high effort levels, and rent dissipation. These results have important implications for the optimal management of long-lived firms such as partnerships.
AB - This paper reports the results from a laboratory experiment which investigates the structure of contracts that emerge in overlapping-generation firms where future ownership is a perquisite of employment. Workers in the young generation are offered employment contracts designed by the firms' owners who belong to the old generation. When old, employed workers are granted ownership rights as long as the firm continues to operate. In line with theoretical predictions, the results indicate that as firm longevity increases, the recursive nature of the contracts leads to a rat race characterized by low wages, high effort levels, and rent dissipation. These results have important implications for the optimal management of long-lived firms such as partnerships.
KW - Experiments
KW - Overlapping-generations models
KW - Rat races
KW - Recursive contracts
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U2 - 10.1016/j.euroecorev.2013.03.009
DO - 10.1016/j.euroecorev.2013.03.009
M3 - Article
AN - SCOPUS:84877797073
SN - 0014-2921
VL - 61
SP - 217
EP - 231
JO - European Economic Review
JF - European Economic Review
ER -