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Learning in Relational Contracts

Kostadinov, Rumen and Kuvalekar, Aditya (2022) 'Learning in Relational Contracts.' American Economic Journal: Microeconomics, 14 (1). pp. 284-329. ISSN 1945-7669 (In Press)

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Abstract

We study relational contracts between a firm and a worker with mutual uncertainty about match quality. The worker’s actions are publicly observed and generate both output and information about the match quality. We show that the relational contracts may be inefficient. We characterize the inefficiency through a holdup problem on the contemporaneous output. In the frequent action limit, these inefficiencies persist if and only if information degrades at least at the same rate at which impatience vanishes. We characterize optimal relational contracts and show that they involve actions that yield both a lower payoff and less information than another action.

Item Type: Article
Uncontrolled Keywords: Relational contracts, dynamic agency, career concerns
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 21 Jul 2020 12:20
Last Modified: 28 Feb 2022 13:55
URI: http://repository.essex.ac.uk/id/eprint/28275

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