Discussion paper

DP9571 Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration

We study how career concerns affect the dynamics of incentives in a multi-period contract, when the agent?s productivity is a stochastic function of his past productivity and investment. We show that incentives are stronger and performance is higher when the contract approaches its expiry date. Contrary to common wisdom, long-term contracts may strengthen reputational effects whereas short-term contracting may be optimal when investment has persistent, long-term effects.

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Citation

Rey, P and E Iossa (eds) (2013), “DP9571 Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration”, CEPR Press Discussion Paper No. 9571. https://cepr.org/publications/dp9571