Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration. Issue 3 (1st June 2014)

• Record Type: Journal Article
• Authors: Iossa, Elisabetta; Rey, Patrick
• Is Part Of: Journal of the European Economic Association. Volume 12:Issue 3(2014:Jun.)
• Page Start: 549
• Page End: 574
• Publication Date: 2014-06-01
• Subjects: D21 -- D23 -- D86 -- L24 -- L51; Economics -- Periodicals; Économie politique -- Périodiques; Science économique; Périodique électronique (Descripteur de forme); Ressource Internet (Descripteur de forme); 330
• DOI: 10.1111/jeea.12075
• Languages: English
• ISSNs: 1542-4766

Abstract

Abstract: 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.