Getting it done: Dynamic incentives to complete a project
Journal of the European Economic Association
© 2014 by the European Economic Association. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving: http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms
Reason for embargo
Publisher's requirements - 24 month embargo from publication.
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.
Economic and Social Research Council (ESRC)
This is the peer reviewed version of the following article: Mason, R. and Välimäki, J. (2015), GETTING IT DONE: DYNAMIC INCENTIVES TO COMPLETE A PROJECT. Journal of the European Economic Association, 13: 62–97. which has been published in final form at doi: 10.1111/jeea.12126 . This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Vol. 13, No. 1, pp. 62-97