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 |
| Open access status: | An open access version is available from UCL Discovery |
| 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 UCL > Provost and Vice Provost Offices > UCL SLASH UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10055476 |
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