Coexistence of long-term and short-term contracts
Macho Stadler, Inés (Universitat Autònoma de Barcelona. Departament d'Economia i d'Història Econòmica)
Pérez-Castrillo, David (Universitat Autònoma de Barcelona. Departament d'Economia i d'Història Econòmica)
Porteiro Fresco, Nicolás (Universidad Pablo de Olavide)

Date:	2014
Abstract:	We study the length of agreements in a market in which infinitely-lived firms contract with agents that live for two periods. Firms differ in the expected values of their projects, as do workers in their abilities to manage projects. Worker effort is not contractible and worker ability is revealed during the relationship. The market dictates the trade-off between sorting and incentives. Short- and long-term contracts often coexist: The best firms always use short-term contracts to hire high-ability senior workers, firms with less profitable projects use short-term contracts to save on the cost of hiring junior workers, whereas intermediate firms use long-term agreements to provide better incentives to their workers. We relate our results to the optimal assignment literature that follows Becker (1973).
Grants:	Ministerio de Ciencia e Innovación ECO2008-04321 Ministerio de Ciencia e Innovación ECO2009-07616 Ministerio de Economía y Competitividad ECO2012-31962 Agència de Gestió d'Ajuts Universitaris i de Recerca 2009SGR-169
Note:	We are grateful to the participants at seminars at CREST (Paris), U de Salamanca and U Autònoma de Barcelona and at SAE 2011 (Málaga), 20iDEA 2011 (Barcelona), Games 2012 (Istanbul), CICGTA 2012 (Qingdao), SAET 2013 (Paris), as well as four reviewers and the co-editor for their insightful comments. Financial support from Ministerio de Ciencia y Tecnología (ECO2008-04321, ECO2009-07616 and ECO2012-31962), Generalitat de Catalunya (2009SGR-169), Junta de Andalucía (SEJ-02936 and SEJ-04992), Severo Ochoa Programme (SEV2011-0075), and ICREA Academia is gratefully acknowledged
Note:	Altres ajuts: SEJ-02936
Note:	Altres ajuts: SEJ-04992
Note:	Altres ajuts: SEV2011-0075
Rights:	Tots els drets reservats.
Language:	Anglès
Document:	Article ; recerca ; Versió acceptada per publicar
Subject:	Matching ; Moral hazard ; Contracts ; Assignment
Published in:	Games and economic behavior, Vol. 86 (2014) , p. 145-164, ISSN 0899-8256

DOI: 10.1016/j.geb.2014.03.013

Postprint 42 p, 1.3 MB

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