BUILDING REPUTATION FOR CONTRACT RENEWAL: IMPLICATIONS FOR PERFORMANCE DYNAMICS AND CONTRACT DURATION | Zendy

Iossa Elisabetta | Zendy; Rey Patrick | Zendy

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BUILDING REPUTATION FOR CONTRACT RENEWAL: IMPLICATIONS FOR PERFORMANCE DYNAMICS AND CONTRACT DURATION

Author(s) -

Iossa Elisabetta,

Rey Patrick

Publication year - 2014

Publication title -

journal of the european economic association

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 7.792

H-Index - 93

eISSN - 1542-4774

pISSN - 1542-4766

DOI - 10.1111/jeea.12075

Subject(s) - incentive , reputation , duration (music) , productivity , investment (military) , term (time) , contract management , affect (linguistics) , economics , microeconomics , incomplete contracts , business , contract theory , labour economics , macroeconomics , management , social science , linguistics , philosophy , physics , quantum mechanics , sociology , politics , art , literature , political science , law

We study how career concerns affect the dynamics of incentives in a multi‐period contract, when the agent's productivity is a stochastic function of his past productivity and investment. We show that incentives are stronger and performance is higher when the contract approaches its expiry date. Contrary to common wisdom, long‐term contracts may strengthen reputational effects whereas short‐term contracting may be optimal when investment has persistent, long‐term effects.

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