ON‐THE‐JOB SEARCH AND MORAL HAZARD

We analyze the interaction between intertemporal incentive contracts and search frictions associated with on‐the‐job search. In our model, agency problems call for wage contracts with deferred compensation. At the same time workers do on‐the‐job search. Deferred compensation improves workers' incentives to exert effort but distorts their on‐the‐job search decisions. We show that deferred compensation is less attractive when the value to the worker–firm pair of on‐the‐job search is high. Moreover, the interplay between search frictions and wage contracts creates feedback effects. If firms in equilibrium use contracts with deferred compensation, fewer firms with vacancies enter the on‐the‐job search market, and this in turn reduces the distortions created by deferred compensation. These feedback effects between the incentive contracts used and the activity level in the search markets can lead to multiple equilibria: a low‐turnover equilibrium where firms use deferred compensation, and a high‐turnover equilibrium where they do not. Furthermore, the model predicts that firms are more likely to use deferred compensation when search frictions are high and when the gains from on‐the‐job search are small.     

GETTING IT DONE: DYNAMIC INCENTIVES TO COMPLETE A PROJECT

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.     

Directed Search for Equilibrium Wage–Tenure Contracts

I construct a theoretical framework in which firms offer wage–tenure contracts to direct the search by risk‐averse workers. All workers can search, on or off the job. I characterize an equilibrium and prove its existence. The equilibrium generates a nondegenerate, continuous distribution of employed workers over the values of contracts, despite that all matches are identical and workers observe all offers. A striking property is that the equilibrium is block recursive; that is, individuals' optimal decisions and optimal contracts are independent of the distribution of workers. This property makes the equilibrium analysis tractable. Consistent with stylized facts, the equilibrium predicts that (i) wages increase with tenure, (ii) job‐to‐job transitions decrease with tenure and wages, and (iii) wage mobility is limited in the sense that the lower the worker's wage, the lower the future wage a worker will move to in the next job transition. Moreover, block recursivity implies that changes in the unemployment benefit and the minimum wage have no effect on an employed worker's job‐to‐job transitions and contracts.     

Fairness and Contract Design

We show experimentally that fairness concerns may have a decisive impact on the actual and optimal choice of contracts in a moral hazard context. Bonus contracts that offer a voluntary and unenforceable bonus for satisfactory performance provide powerful incentives and are superior to explicit incentive contracts when there are some fair‐minded players, but trust contracts that pay a generous wage up front are less efficient than incentive contracts. The principals understand this and predominantly choose the bonus contracts. These results are consistent with recently developed theories of fairness, which offer important new insights into the interaction of contract choices, fairness, and incentives.     

Endogenous Contracts in Unionized Oligopoly

We study the endogenous determination of contracts in a unionized oligopoly and the welfare implications thereof. Alternative contracts specify the sequencing in the selection of R&D and wages. They can be classified as ‘fixed’ when the unions set wages before the firms make their R&D decisions or ‘floating’ when the sequencing of these choices is reversed. If the unions are highly employment‐oriented, we find that either all firm–union pairs choose floating‐wage contracts or both contract types may coexist depending on the degree of technological spillovers. However, when the unions have stronger preference over attaining a good wage deal, then it becomes very likely that fixed‐wage contracts will endogenously emerge because they can serve as an insurance device against oppor tunistic wage increases. Our welfare analysis suggests that welfare‐improving contracts may nevertheless not always arise in equilibrium.     

COMPETITION AND RELATIONAL CONTRACTS: THE ROLE OF UNEMPLOYMENT AS A DISCIPLINARY DEVICE

Abstract When workers are faced with the threat of unemployment, their relationship with a particular firm becomes valuable. As a result, a worker may comply with the terms of a relational contract that demands high effort even when performance is not enforceable by a third party. But can relational contracts motivate high effort when workers can easily find alternative jobs? We examine how competition for labor affects the emergence of relational contracts and their effectiveness in overcoming moral hazard in the labor market. We show that effective relational contracts do emerge in a market with excess demand for labor. Long‐term relationships turn out to be less frequent when there is excess demand for labor than they are in a market characterized by exogenous unemployment. However, stronger competition for labor does not impair labor market efficiency: higher wages induced by competition lead to higher effort out of concerns for reciprocity.     

Equilibrium Wage‐Tenure Contracts

In this study we consider a labor market matching model where firms post wage‐tenure contracts and workers, both employed and unemployed, search for new job opportunities. Given workers are risk averse, we establish there is a unique equilibrium in the environment considered. Although firms in the market make different offers in equilibrium, all post a wage‐tenure contract that implies a worker's wage increases smoothly with tenure at the firm. As firms make different offers, there is job turnover, as employed workers move jobs as the opportunity arises. This implies the increase in a worker's wage can be due to job‐to‐job movements as well as wage‐tenure effects. Further, there is a nondegenerate equilibrium distribution of initial wage offers that is differentiable on its support except for a mass point at the lowest initial wage. We also show that relevant characteristics of the equilibrium can be written as explicit functions of preferences and the other market parameters.     

Efficient Labour Contracts: Impediments and How to Circumvent Them

Efficient labour contracts on wages and employment could contribute to a reduction in unemployment in Europe. Their implementation is hindered by institutional settings and asymmetric incentives at different levels of the bargaining process. Employed workers have no incentives to forego wage increases at the firm level for potential employment gains, while employers’ federations possess no means to guarantee an employment increase for the sector covered by a wage agreement. Decentralization of wage bargaining does not solve this incentive problem. It is demonstrated that the introduction of marketable certificates may reduce the asymmetric incentive effects enabling contracts with higher employment.     

In Search of Workers' Real Effort Reciprocity—a Field and a Laboratory Experiment

We present a field experiment to assess the effect of own and peer wage variations on actual work effort of employees with hourly wages. Work effort neither reacts to an increase of the own wage, nor to a positive or negative peer comparison. This result seems at odds with numerous laboratory experiments that show a clear own wage sensitivity on effort. In an additional real‐effort laboratory experiment we show that explicit cost and surplus information that enables an exact calculation of an employer's surplus from the work contract is a crucial prerequisite for a positive wage–effort relation. This demonstrates that an employee's reciprocity requires a clear assessment of the surplus at stake. (JEL: C91, C92, J41)     

THE REPLACEMENT PROBLEM IN FRICTIONAL ECONOMIES: A NEAR‐EQUIVALENCE RESULT

We examine how technological change affects wage inequality and unemployment in a calibrated model of matching frictions in the labor market. We distinguish between two polar cases studied in the literature: a “creative destruction” economy, where new machines enter chiefly through new matches and an “upgrading” economy, where machines in existing matches are replaced by new machines. Our main results are: (i) these two economies produce very similar quantitative outcomes, and (ii) the total amount of wage inequality generated by frictions is very small. We explain these findings in light of the fact that, in the model calibrated to the US economy, both unemployment and vacancy durations are very short, i.e., the matching frictions are quantitatively minor. Hence, the equilibrium allocations of the model are remarkably close to those of a frictionless version of our economy where firms are indifferent between upgrading and creative destruction, and where every worker is paid the same market‐clearing wage. These results are robust to the inclusion of machine‐specific or match‐specific heterogeneity into the benchmark model. (JEL: J41, J64, O33)     

Moral Hazard Contracting and Private Credit Markets

This paper studies the impact of credit markets on optimal contracting, when the agent's “interim preference” over upcoming contracts is private information because personal financial decisions affect it via the wealth effect. The main result is a severe loss of incentive provision: equilibrium contracts invariably cause the agent to shirk (i.e., exert minimal effort) if the agent's private financial decision precedes moral hazard contracting. The basic intuition is that committing on another private variable, other than the effort level, exposes the parties to further exploitation of efficient risk‐sharing by relaxing the incentive constraint that was binding ex ante, unless the risk‐sharing was fully efficient to begin with.     

Incentive Contracts for Managing a Project with Uncertain Completion Time

We examine two time‐related incentive project management contracts (C1 and C2 contracts) when the manager conducts a reverse auction. Under the C1 contract, the contractor with the lowest bid price wins; however, the manager imposes a linear and symmetric incentive/disincentive for early/late completion according to a pre‐specified due date. Under the C2 contract, the winning contractor has the lowest composite score that is based on the quoted price and the quoted due date; however, in addition to the linear and symmetric penalty/incentive, the contractor is subject to an additional penalty for late completion. While the C2 contract is more sophisticated than the C1 contract (in terms of the number of decisions that each party has to make), our analysis reveals that, unless the project is truly urgent, the more complicated C2 contract adds no value to the manager— the simple C1 contract will suffice.     

Employment with Alternative Incentive Schemes when Effort is Not Verifiable

Abstract. This paper compares macroeconomic results related to efficiency wages, contracts with bonus and tournaments in a framework with unverifiable effort. When effort is fully observable, both contracts with bonus and tournaments, unlike efficiency wages, solve the incentive problem without generating involuntary unemployment. Only tournaments, however, allow attainment of the Pareto optimal employment level. If effort is not fully observable, previous results must, to some extent, be reconsidered. Contracts with bonus also produce involuntary unemployment, while tournaments, in addition to continuing to produce a higher level of employment, generate involuntary unemployment only if a shirker who is not caught has some probability of winning.     

Stable and Coordinating Contracts for a Supply Chain with Multiple Risk‐Averse Suppliers

We analyze a decentralized supply chain with a single risk‐averse retailer and multiple risk‐averse suppliers under a Conditional Value at Risk objective. We define coordinating contracts and show that the supply chain is coordinated only when the least risk‐averse agent bears the entire risk and the lowest‐cost supplier handles all production. However, due to competition, not all coordinating contracts are stable. Thus, we introduce the notion of contract core, which reflects the agents' “bargaining power” and restricts the set of coordinating contracts to a subset which is “credible.” We also study the concept of contract equilibrium, which helps to characterize contracts that are immune to opportunistic renegotiation. We show that, the concept of contract core imposes conditions on the share of profit among different agents, while the concept of contract equilibrium provide conditions on how the payment changes with the order quantity.     

基于不公平厌恶或地位追求的创新顾客最优合同类型研究

本文首先从创新顾客的公平偏好程度、薪酬合同类型（最优激励系数）与激励机制效果的关系入手,引入公平偏好理论（不公平厌恶和地位追求）、相对绩效评估（RPE）和参与成本要素,构建顾客参与企业新产品开发的激励模型;其次,通过模型求解和分析,探讨分析各类薪酬合同中风险成本、不公平预期损失和激励效果之间的关系;最后,通过仿真实验验证并确定企业采用的创新顾客最优薪酬合同类型。研究发现：在同一薪酬合同下,创新顾客愈不在意其参与成本的投入,该合同的激励效果愈积极;关于创新顾客最优合同类型的选择,意味着求解一个三方面权衡,包括风险成本、不公平预期损失和公平偏好的激励效果;对于公平偏好程度较低的创新顾客,企业可采用相对绩效合同,例如锦标竞争合同;对于公平偏好程度较高的创新顾客,当其风险规避程度较高时,可采用团队报酬合同,当其风险规避程度较低时,可采用完美团队合同。     

The Comparison of Two Vertical Outsourcing Structures under Push and Pull Contracts

In a three‐tier supply chain comprising an original equipment manufacturer (OEM), a contract manufacturer (CM), and a supplier, there exist two typical outsourcing structures: control and delegation. Under the control structure, the OEM contracts with the CM and the supplier respectively. Under the delegation structure, the OEM contracts with the CM only and the CM subcontracts with the supplier. We compare the two outsourcing structures under a push contract (whereby orders are placed before demand is realized) and a pull contract (whereby orders are placed after demand is realized). For all combinations of outsourcing structures and contracts, we derive the corresponding equilibrium wholesale prices, order quantities, and capacities. We find that the equilibrium production quantity is higher under control than under delegation for the push contract whereas the reverse holds for the pull contract. Both the OEM and the CM prefer control over delegation under the push contract. However, under the pull contract, the OEM prefers control over delegation whereas the CM and the supplier prefer delegation over control. We also show that for a given outsourcing structure, the OEM prefers the pull contract over the push contract. In extending our settings to a general two‐wholesale‐price (TWP) contract, we find that when wholesale prices are endogenized decision variables, the TWP contract under our setting degenerates to either a push or a pull contract.     

Job Matching and the Wage Distribution

This paper brings together the microeconomic‐labor and the macroeconomic‐equilibrium views of matching in labor markets. We nest a job matching model à la Jovanovic (1984) into a Mortensen and Pissarides (1994)‐type equilibrium search environment. The resulting framework preserves the implications of job matching theory for worker turnover and wage dynamics, and it also allows for aggregation and general equilibrium analysis. We obtain two new equilibrium implications of job matching and search frictions for wage inequality. First, learning about match quality and worker turnover map Gaussian output noise into an ergodic wage distribution of empirically accurate shape: unimodal, skewed, with a Paretian right tail. Second, high idiosyncratic productivity risk hinders learning and sorting, and reduces wage inequality. The equilibrium solutions for the wage distribution and for the aggregate worker flows—quits to unemployment and to other jobs, displacements, hires—provide the likelihood function of the model in closed form.     

Contract Length as Risk Management When Labor is not Homogeneous

This paper examines the choice of contract length for workers who possess unique skills. Uncertainty, facing both the worker and the firm, creates an incentive to reallocate risk. The uncertainty arises from two sources: variation in the market value of the worker's human capital and fluctuation in the worker's physical production. Long‐term contracts are typically modeled as compensating wage differentials, or as a solution to the problem of asymmetric information. This paper develops a model proposing more complex behavior in the reallocation of risk between the contracting parties. The model shows that long‐term labor contracts are most likely to be observed when price uncertainty in the labor market exceeds the worker's productive uncertainty.     

Measurement Error and Incentive Pay

Abstract. We will analyse the optimal incentive scheme when the risk‐neutral principal contracts with many risk‐averse agents. Each agent produces an individual contribution which jointly form a total output. Agents’ efforts are unobservable and the principal cannot observe individual outputs without an error. Neither the observed individual output of an agent nor the observed total output of the whole team are then sufficient statistics for the actual individual output in the sense of Blackwell. We show that the mixed contract of the pure piece‐rate contract and of the pure team contract then dominates the pure contracts from the principal's point of view.     

基于非排它性互换合约的管理层激励研究

管理者进行金融衍生品市场的非排它性股权互换交易会降低报酬合约的事后激励强度,并对企业价值和风险产生影响.本文在管理者可同时影响企业风险和企业价值的条件下,构建基于股权互换避险交易的管理者激励薪酬动态博弈模型.结果表明,当管理者投入产出效率高于某临界值时,互换避险的存在不会降低激励合约的强度;否则激励合约强度的减弱程度随...