Open AccessGETTING IT DONE: DYNAMIC INCENTIVES TO COMPLETE A PROJECT
Author(s) -
Mason Robin,
Välimäki Juuso
Publication year - 2015
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.12126
Subject(s) - incentive , computer science , library science , economics , microeconomics
A principal wants an agent to complete a project. The agent undertakes unobservable effort, which affects in each period the probability that the project is completed. We characterize the contracts that the principal sets, with and without commitment. With full commitment, the contract involves the agent's value and wage declining over time, in order to give the agent incentives to exert effort. The best sequentially rational equilibrium for the principal also involves the agent's wage declining over time, while the worst sequentially rational equilibrium for the principal has a constant wage (and is in fact the unique stationary equilibrium). The best (weakly) renegotiation‐proof equilibrium for the principal is achieved by a constant wage that maximizes the principal's payoff, conditional on wages being constant. We compare these solutions to the efficient outcome.