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Managing intrinsic motivation in a long-run relationship

Eliaz, K; Spiegler, R; (2018) Managing intrinsic motivation in a long-run relationship. Economics Letters , 165 pp. 6-9. 10.1016/j.econlet.2018.01.018.

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Abstract

We study a repeated principal–agent interaction, in which the principal offers a ”spot” wage contract at every period, and the agent’s outside option follows a Markov process with shocks. If the agent rejects an offer, the two parties are permanently separated. At any period during the relationship, the agent is productive as long as his wage does not fall below a ”reference point”, which is defined as his lagged-expected wage in that period. We characterize the game’s unique Markov perfect equilibrium. The equilibrium path exhibits an aspect of wage rigidity. The agent’s total discounted rent is equal to the maximal shock value.

Type: Article
Title: Managing intrinsic motivation in a long-run relationship
DOI: 10.1016/j.econlet.2018.01.018
Publisher version: https://doi.org/10.1016/j.econlet.2018.01.018
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Social Sciences, Economics, Business & Economics, Reference-dependence, Dynamic contracting, Principal-agent, Wage rigidity, Intrinsic motivation
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/10055476
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