Published August 28, 2017
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Firing in Non-Repeated Incentive Contracts
- Creators
- Sherstyuk, Katerina
Abstract
When the presence of limited liability restricts a principal from imposing monetary fines on an agent in case of poor performance, the principal might use other kinds of punishment threats to deter the agent from shirking. If firing is costly to the agent it can be used by the principal even in non-repeated contracts. This paper considers the conditions under which a profit-sharing arrangement combined with a certain firing rule improves the principal's position compared to the situation in which firing is not an option. The optimal firing rule is established, and its effectiveness is considered as a function of exogenous economic variables. Possible applications of the proposed contract are suggested.
Additional Information
Revised version. Original dated to September 1992. I would like to thank John Ledyard, Morgan Kousser, Tom Palfrey and Jeffrey Banks for their help and suggestions. I also benefited from discussions with Kim Border, Rod Kiewiet, Matthew Spitzer, Yan Chen and Olga Shvetsova. Financial assistance from the Flight Projects Office of the Jet Propulsion Laboratory (JPL) of NASA to the Program on Organization Design (PrOD) is greatly appreciated. Any errors are my own.Attached Files
Submitted - sswp811_-_revised.pdf
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Additional details
- Eprint ID
- 80878
- Resolver ID
- CaltechAUTHORS:20170828-161619896
- JPL
- Created
-
2017-08-28Created from EPrint's datestamp field
- Updated
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2019-10-03Created from EPrint's last_modified field
- Caltech groups
- Social Science Working Papers
- Series Name
- Social Science Working Paper
- Series Volume or Issue Number
- 811