Roketskiy, Nikita;
Bhaskar, V;
(2023)
The Ratchet Effect: A Learning Perspective.
Journal of Economic Theory
, 214
, Article 105762. 10.1016/j.jet.2023.105762.
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Abstract
We examine the ratchet effect under moral hazard and symmetric learning by worker and firm about new technology. Shirking increases the worker’s future payoffs, since the firm overestimates job difficulty. High-powered incentives to deter shirking induce the agent to over-work, since he can quit if the firm thinks the job is too easy. With continuous effort choices, no deterministic interior effort is implementable. We provide conditions under which randomized effort is implementable, so that a profit-maximizing distribution over efforts exists.
| Type: | Article |
|---|---|
| Title: | The Ratchet Effect: A Learning Perspective |
| DOI: | 10.1016/j.jet.2023.105762 |
| Publisher version: | https://doi.org/10.1016/j.jet.2023.105762 |
| 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: | Ratchet effect, Moral hazard, Learning, Randomized effort |
| 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/10180795 |
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