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Monotone contracts

Author

Listed:
  • Bird, Daniel

    (Eitan Berglas School of Economics, Tel Aviv University)

  • Frug, Alexander

    (Department of Economics and Business, Universitat Pompeu Fabra and Barcelona School of Economics)

Abstract

We develop a framework for deriving dynamic monotonicity results in long-term stochastic contracting problems with symmetric information. Specifically, we construct a notion of concave separable activity that encompasses many prevalent contractual components (e.g., wage, effort, level of production, etc.). We then provide a tight condition under which such activities manifest a form of seniority in every contracting problem in which they are present: any change that occurs in the level of the activity over time favors the agent. Our work unifies and significantly generalizes many existing results and can also be used to establish monotonicity results in other settings of interest.

Suggested Citation

  • Bird, Daniel & Frug, Alexander, 2022. "Monotone contracts," Theoretical Economics, Econometric Society, vol. 17(3), July.
    • Handle: RePEc:the:publsh:4842
    as

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    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20221041/34315/1004
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    References listed on IDEAS

    as
    1. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-620, September.
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    More about this item

    Keywords

    Dynamic contracting; activities; seniority;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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