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- Publisher
- American Economic Association
- Copyright
- Copyright © 2018 © American Economic Association
- ISSN
- 1945-7685
- DOI
- 10.1257/mic.20160222
- Publisher site
- See Article on Publisher Site
Abstract
AbstractIn many jobs, the worker generates only subjective performance measures privately observed by the employer, and contracts must rely on employer reports about these measures. This setting is a game with private monitoring, and prior work suggests that the optimal contract may be complex and non-recursive. I introduce a novel equilibrium refinement and show that the optimal contract simplifies to an efficiency wage contract: The worker receives a wage above his outside option and reports take a pass-fail form. Each report depends only on performance since the previous report, and effort incentives are provided purely through the threat of termination. (JEL D86, J41)
Journal
American Economic Journal: Microeconomics – American Economic Association
Published: Nov 1, 2018