I consider a repeated principal-agent setting in which the agent repeatedly chooses between hidden “long-term” and “short-term” actions. Relative to the long-term action, the short-term action boosts output today but hurts output tomorrow. The optimal contract inducing long-term actions provides a fresh perspective on upward sloping pay scales, severance pay and high-watermark contracts. The my...

The Impact of Teams on Output, Quality and Downtime: An Empirical Analysis Using Individual Panel Data To investigate the size and the timing of the direct impact of participatory arrangements on business performance, we assemble and analyze extraordinary daily data – for rejection, production and downtime rates for all operators in a single plant during a 35 month period, more than 77,000 obse...

We study the optimal incentive scheme for a project with two stages in which a risk-neutral agent, protected by limited liability, can divert resources for private benefit. Staged financing, pervasive in both venture capital and funding research, arises as a feature of the optimal contract. The nature of progress (i.e., successful completion of the first stage) plays an important role. When pro...

Introducing Time-to-Educate in a Job Search Model Transition patterns from school to work differ considerably across OECD countries. Some countries exhibit high youth unemployment rates, which can be considered an indicator of the difficulty facing young people trying to integrate into the labor market. At the same time, education is a time-consuming process, and enrolment and dropout decisions...

Human capital theory and agency theory are two of the most important building blocks of labor economics. However, the connection between these two building blocks has never been explicitly analyzed. This paper demonstrates that a simple moral hazard model, based on the premise that an agent’s e¤ort has a persistent e¤ect on future productivity through human capital accumulation, generates rich ...

The following properties of the core of a one-to-one matching problem are well-known: (i) the core is non-empty; (ii) the core is a lattice; and (iii) the set of unmatched agents is identical for any two matchings belonging to the core. The literature on two-sided matching focuses almost exclusively on the core and studies extensively its properties. Our main result is the following characteriz...

Gift Exchange and Workers’ Fairness Concerns: When Equality Is Unfair We study how different payment modes influence the effectiveness of gift exchange as a contract enforcement device. In particular, we analyze how horizontal fairness concerns affect performance and efficiency in an environment characterized by contractual incompleteness. In our experiment, one principal is matched with two ag...

Without contracting or repetition, purely self-regarding agents will not trade. To what extent can social preferences, such as altruism or a concern for fairness, generate efficient bilateral exchange? I analyze a simple exchange game: A purely self-regarding first mover transfers some amount of a commodity to a second mover. Then the second mover, who has social preferences defined over materi...

A model of the labor market under search frictions is developed, where participants are heterogeneous with respect to their productivity types and the individual decision of which type of agents to match with is endogenized. Wages are negotiated, so that all gains from trade are exploited. This has important implications for the equilibrium outcomes. In particular, two applications are studied....

To reduce equilibrium unemployment targeted hiring subsidies and profiling techniques for long-term unemployed are often recommended. To analyze the effects of these two instruments, our model combines two search methods: the public employment service and random search, jobseekers choose between an active and a passive search strategy, while labour market policy has two options available. First...