Arbeitspapier
A repeated principal-agent model with on-the-job search
This paper analyzes how on-the-job search (OJS) by an agent impacts the moral hazard problem in a repeated principal-agent relationship. OJS is found to constitute a source of agency costs because efficient search incentives require that the agent receives all gains from trade. Further, the optimal incentive contract with OJS matches the design of empirically observed compensation contracts more accurately than models that ignore OJS. In particular, the optimal contract entails excessive performance pay plus efficiency wages. Efficiency wages reduce the opportunity costs of work effort and hence serve as a complement to bonuses. Thus, the model offers a novel explanation for the use of efficiency wages. When allowing for renegotiation, the model generates wage and turnover dynamics that are consistent with empirical evidence. I argue that the model contributes to explaining the concomitant rise in the use of performance pay and in competition for high-skill workers during the last three decades.
- Sprache
-
Englisch
- Erschienen in
-
Series: SAFE Working Paper ; No. 64
- Klassifikation
-
Wirtschaft
Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
Asymmetric and Private Information; Mechanism Design
Economics of Contract: Theory
Compensation Packages; Payment Methods
Transactional Relationships; Contracts and Reputation; Networks
- Thema
-
Repeated Principal-Agent Model
On-the-Job Search
Moral Hazard
Multitasking
Efficiency Wages
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Herbold, Daniel
- Ereignis
-
Veröffentlichung
- (wer)
-
Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
- (wo)
-
Frankfurt a. M.
- (wann)
-
2014
- DOI
-
doi:10.2139/ssrn.2479325
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:42 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Herbold, Daniel
- Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
Entstanden
- 2014
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