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Optimal Contracts with Randomly Arriving Tasks

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  • Daniel Bird
  • Alexander Frug

Abstract

Workers rarely perform exactly the same tasks every day. Instead, their daily workload may change randomly over time to comply with the fluctuating needs of the organization where they are employed. In this paper, we show that this typical randomness in workplaces has a striking effect on the structure of long-term employment contracts. In particular, simple intertemporal variability in the worker's tasks is sufficient to generate a rich promotion-based dynamics in which, occasionally, the worker receives a (permanent) wage raise and his future work requirements are reduced.

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  • Daniel Bird & Alexander Frug, 2020. "Optimal Contracts with Randomly Arriving Tasks," Working Papers 1147, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1147
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    References listed on IDEAS

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    Cited by:

    1. Baccara, Mariagiovanna & Lee, SangMok & Yariv, Leeat, 2023. "Task allocation and on-the-job training," Journal of Economic Theory, Elsevier, vol. 207(C).

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    More about this item

    Keywords

    dynamic contracting; random tasks; seniority; promotion;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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