Dynamic Contracts and Learning by Doing This paper studies the design of optimal contracts in dynamic environments where agents learn by doing. We derive a condition under which contracts are fully incentive compatible. A closed-form solution is obtained when agents have CARA utility. It shows that human capital accumulation strengthens the power of incentives and allows the principal to provid...

We apply the comparative techniques originated by Wolpin, K.I. (1977, Education and screening, American Economic Review, 67, 949–958) and Psacharopoulos (1979, On the weak versus the strong version of the screening hypothesis, Economics Letters, 4, 181–185) to discriminate between the ‘weak’ and ‘strong’ screening hypotheses. Controlling for sample selection, we find evidence for weak but not s...

We assess South African workseekers’ skills and disseminate the assessment results to explore how limited information affects firm workseeker behavior. Giving workseekers that they can credibly share with firms increases employment earnings better aligns their skills, beliefs search strategies. cannot easily has similar effects on search, but smaller earnings. only shifts interview decisions. T...

A principal owns a firm, hires an agent of uncertain productivity, and designs dynamic policy for evaluating his performance. The observes ongoing evaluations decides when to quit. When not quitting, the is paid wage that linear in expected productivity; claims residual After players secure fixed outside options. I show equilibrium Pareto efficient. For broad class performance technologies, det...

Using administrative payroll data from the largest US processing company, we measure extent of nominal wage rigidity in United States. The allow us to define a worker’s per-period base contract separately other forms compensation such as overtime premiums and bonuses. We provide evidence that firms use wages cyclically adjust marginal cost their workers. Nominal declines are much rarer than pre...

Abstract We measure U.S. listed companies’ skilled labor risk—that is, the potential failure in attracting and retaining labor, by intensity of discussions on this issue 10-K filings. show that effectively captures firm risk due to mobility labor. find an increase from 25th 75th percentile would wage 22% (or $15,593) also lead higher equity-based incentive pay. The interacts with other corporat...

We consider a Rothschild-Stiglitz-Spence labour market model and employ a centralised mechanism to coordinate the efficient matching of workers to firms. This mechanism can be thought of as operated by a recruitment agency, an employment office or head hunter. In a centralised descending-bid, multi-item procurement auction, workers submit wage-bids for each job and are assigned stable jobs as e...

This paper shows that models where preferences of individuals depend not only on their allocations, but also on the well being of other persons, can produce both large and testable effects. We study the allocation of workers with heterogeneous productivities to firms. We show that even small deviations from purely “selfish” preferences leads to widespread workplace skill segregation. That is, w...

We generate estimates of the costs of broad-based stock option programs under varying assumptions about why firms use these pay schemes. We show that, if accounting considerations alone drive option grants, a typical firm in our sample incurs between 50 cents and one dollar of real costs in order to increase reported pre-tax net income by $1. This cost is reduced, but is still quite substantial...

This paper studies the effect of product market competition on the explicit compensation packages that firms offer to their CEOs, executives and workers. We use a large sample of both traded and non-traded UK firms and exploit a quasi-natural experiment associated to an increase in competition. The sudden appreciation of the pound in 1996 implied different changes in competition for sectors wit...