When to fire a CEO: optimal termination in dynamic contracts
نویسندگان
چکیده
Existing models of dynamic contracts impose that it is both optimal and feasible for the contracting parties to bind themselves together forever This paper introduces optimal termination in dynamic contracts We modify the standard dynamic agency model to include an external labor market which upon the dissolution of the contract allows the rm to return to the labor market to seek a new match Under this simple closure of the model two types of terminations emerge Under one scenario the agent is red after a sequence of bad outputs and she becomes too poor to be punished e ectively Under the second scenario the agent is forced out after a sequence of good outputs and she becomes too expensive to motivate We then use the model to study issues of CEO termation and rm dynamics This paper was initially circulated under the title When to Terminate a Long Term Contract We thank seminar participants at the Arizona State University the University of Western Ontario Duke University Stanford University Peking University and the SED meeting in Costa Rica for helpful discussions
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عنوان ژورنال:
- J. Economic Theory
دوره 120 شماره
صفحات -
تاریخ انتشار 2005