Dilme, Francesc and Garrett, Daniel (2023) Relational Contracts: Public versus Private Savings. Econometrica: journal of the Econometric Society, 91 (3). pp. 1025-1075. DOI https://doi.org/10.3982/ECTA18742
Dilme, Francesc and Garrett, Daniel (2023) Relational Contracts: Public versus Private Savings. Econometrica: journal of the Econometric Society, 91 (3). pp. 1025-1075. DOI https://doi.org/10.3982/ECTA18742
Dilme, Francesc and Garrett, Daniel (2023) Relational Contracts: Public versus Private Savings. Econometrica: journal of the Econometric Society, 91 (3). pp. 1025-1075. DOI https://doi.org/10.3982/ECTA18742
Abstract
Work on relational employment agreements often predicts low payments or termination for poor performance. The possibility of saving can, however, limit the effectiveness of monetary incentives in motivating an employee with diminishing marginal utility for consumption. We study the role of savings and their observability in optimal relational contracts. We focus on the case where players are not too patient, and hence the constant first-best effort cannot be implemented. If savings are hidden, the relationship eventually deteriorates over time. In particular, both payments and effort decline. On the other hand, if savings are public, consumption is initially high, so the agent’s savings fall over time, and effort and payments to the agent increase. The findings thus suggest how tacit agreements on consumption can forestall the deterioration of dynamic relationships in which the agent can save.
Item Type: | Article |
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Uncontrolled Keywords: | consumption smoothing preferences; private savings; relational contracts |
Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Economics, Department of |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 07 Mar 2023 18:53 |
Last Modified: | 16 May 2024 21:43 |
URI: | http://repository.essex.ac.uk/id/eprint/34999 |
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