IDEAS home Printed from https://ideas.repec.org/p/dpr/wpaper/0919.html
   My bibliography  Save this paper

A Tenure-Clock Problem

Author

Listed:
  • Chia-Hui Chen
  • Junichiro Ishida

Abstract

We consider a "tenure-clock problem" in which a principal may set a deadline by which she needs to evaluate an agent's ability and decides whether to promote him or not. We embed this problem in a continuous-time model with both hidden action and hidden information, where the principal must induce the agent to exert effort to facilitate her learning process. The value of committing to a deadline is examined in this environment, and factors that make the deadline more profitable are identified. Our simple framework allows us to obtain a complete characterization of the equilibrium, both with and without commitment, and provides insight into why up-or-out contracts are prevalent in some industries while they are almost non-existent in others.

Suggested Citation

  • Chia-Hui Chen & Junichiro Ishida, 2015. "A Tenure-Clock Problem," ISER Discussion Paper 0919, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:0919
    as

    Download full text from publisher

    File URL: https://www.iser.osaka-u.ac.jp/library/dp/2015/DP0919.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gustavo Manso, 2011. "Motivating Innovation," Journal of Finance, American Finance Association, vol. 66(5), pages 1823-1860, October.
    2. Kathryn E. Spier, 1992. "The Dynamics of Pretrial Negotiation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(1), pages 93-108.
    3. Bergemann, Dirk & Hege, Ulrich, 1998. "Venture capital financing, moral hazard, and learning," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 703-735, August.
    4. Alessandro Bonatti & Johannes Horner, 2011. "Career Concerns and Market Structure," Cowles Foundation Discussion Papers 1831R, Cowles Foundation for Research in Economics, Yale University, revised Oct 2013.
    5. Johannes Hörner & Larry Samuelson, 2011. "Managing Strategic Buyers," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 379-425.
    6. Johannes Hörner & Larry Samuelson, 2013. "Incentives for experimenting agents," RAND Journal of Economics, RAND Corporation, vol. 44(4), pages 632-663, December.
    7. , & ,, 2012. "A principal-agent model of sequential testing," Theoretical Economics, Econometric Society, vol. 7(3), September.
    8. Dirk Bergemann & Ulrigh Hege, 2005. "The Financing of Innovation: Learning and Stopping," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 719-752, Winter.
    9. Arthur Campbell & Florian Ederer & Johannes Spinnewijn, 2014. "Delay and Deadlines: Freeriding and Information Revelation in Partnerships," American Economic Journal: Microeconomics, American Economic Association, vol. 6(2), pages 163-204, May.
    10. repec:cwl:cwldpp:1726rrr is not listed on IDEAS
    11. repec:cwl:cwldpp:1726rr is not listed on IDEAS
    12. Suman Ghosh & Michael Waldman, 2010. "Standard promotion practices versus up‐or‐out contracts," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 301-325, June.
    13. Chia-Hui Chen, 2012. "Name Your Own Price at Priceline.com: Strategic Bidding and Lockout Periods," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(4), pages 1341-1369.
    14. Hendricks, Ken & Weiss, Andrew & Wilson, Charles A, 1988. "The War of Attrition in Continuous Time with Complete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 663-680, November.
    15. Brendan O'Flaherty & Aloysius Siow, 1992. "On the Job Screening, up or out Rules, and Firm Growth," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 346-368, May.
    16. Marina Halac & Navin Kartik & Qingmin Liu, 2016. "Optimal Contracts for Experimentation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(3), pages 1040-1091.
    17. John Abowd & Francis Kramarz & Sebastien Perez-Duarte & Ian Schmutte, 2009. "A Formal Test of Assortative Matching in the Labor Market," Working Papers 09-40, Center for Economic Studies, U.S. Census Bureau.
    18. Waldman, Michael, 1990. "Up-or-Out Contracts: A Signaling Perspective," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 230-250, April.
    19. Canice Prendergast, 1993. "The Role of Promotion in Inducing Specific Human Capital Acquisition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(2), pages 523-534.
    20. Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
    21. William Fuchs & Andrzej Skrzypacz, 2013. "Bargaining with Deadlines and Private Information," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 219-243, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chen, Chia-Hui & Ishida, Junichiro, 2018. "Hierarchical experimentation," Journal of Economic Theory, Elsevier, vol. 177(C), pages 365-404.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chia‐Hui Chen & Junichiro Ishida, 2018. "Dynamic performance evaluation with deadlines: The role of commitment," Journal of Industrial Economics, Wiley Blackwell, vol. 66(2), pages 377-422, June.
    2. Khalil, Fahad & Lawarree, Jacques & Rodivilov, Alexander, 2020. "Learning from failures: Optimal contracts for experimentation and production," Journal of Economic Theory, Elsevier, vol. 190(C).
    3. Alessandro Spiganti, 2020. "Can Starving Start‐ups Beat Fat Labs? A Bandit Model of Innovation with Endogenous Financing Constraint," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 702-731, April.
    4. Bhattacharjee, Swagata, 2022. "Dynamic contracting for innovation under ambiguity," Games and Economic Behavior, Elsevier, vol. 132(C), pages 534-552.
    5. Gomes, Renato & Gottlieb, Daniel & Maestri, Lucas, 2016. "Experimentation and project selection: Screening and learning," Games and Economic Behavior, Elsevier, vol. 96(C), pages 145-169.
    6. Alessandro Spiganti, 2022. "Wealth Inequality and the Exploration of Novel Alternatives," Working Papers 2022:02, Department of Economics, University of Venice "Ca' Foscari".
    7. Braz Camargo & Elena Pastorino, 2016. "Learning-by-Employing: The Value of Commitment under Uncertainty," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 581-620.
    8. Rodivilov, Alexander, 2022. "Monitoring innovation," Games and Economic Behavior, Elsevier, vol. 135(C), pages 297-326.
    9. Chia-Hui Chen & Junichiro Ishida, 2017. "Rewarding Mediocrity? Optimal Regulation of R&D Markets with Reputation Concerns," ISER Discussion Paper 0994, Institute of Social and Economic Research, Osaka University.
    10. Chen, Chia-Hui & Ishida, Junichiro, 2018. "Hierarchical experimentation," Journal of Economic Theory, Elsevier, vol. 177(C), pages 365-404.
    11. Catherine Bobtcheff & Raphaël Levy, 2017. "More Haste, Less Speed? Signaling through Investment Timing," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 148-186, August.
    12. Carroll, Gabriel, 2019. "Robust incentives for information acquisition," Journal of Economic Theory, Elsevier, vol. 181(C), pages 382-420.
    13. Johannes Hörner & Larry Samuelson, 2013. "Incentives for experimenting agents," RAND Journal of Economics, RAND Corporation, vol. 44(4), pages 632-663, December.
    14. Gadi Barlevy & Derek Neal, 2019. "Allocating Effort and Talent in Professional Labor Markets," Journal of Labor Economics, University of Chicago Press, vol. 37(1), pages 187-246.
    15. Sofia Moroni, 2016. "Experimentation in Organizations," Working Paper 5876, Department of Economics, University of Pittsburgh.
    16. Shan, Yaping, 2019. "Incentives for research agents and performance-vested equity-based compensation," Journal of Economic Dynamics and Control, Elsevier, vol. 102(C), pages 44-69.
    17. Sadler, Evan, 2021. "Dead ends," Journal of Economic Theory, Elsevier, vol. 191(C).
    18. Bhaskar, Venkataraman, 2014. "The Ratchet Effect Re-examined: A Learning Perspective," CEPR Discussion Papers 9956, C.E.P.R. Discussion Papers.
    19. Yaping Shan, 2013. "Incentives for Research Agents: Optimal Contracts and Implementation," School of Economics and Public Policy Working Papers 2013-20, University of Adelaide, School of Economics and Public Policy.
    20. Thomas Greve & Hans Keiding, 2023. "A model of privately funded public research," Journal of Economics, Springer, vol. 140(1), pages 63-91, September.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dpr:wpaper:0919. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Librarian (email available below). General contact details of provider: https://edirc.repec.org/data/isosujp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.