Monotone contracts

Daniel Bird*, Alexander Frug

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We develop a framework for deriving dynamic monotonicity results in long-term stochastic contracting problems with symmetric information. Specifically, we construct a notion of concave separable activity that encompasses many prevalent contractual components (e.g., wage, effort, level of production, etc.). We then provide a tight condition under which such activities manifest a form of seniority in every contracting problem in which they are present: any change that occurs in the level of the activity over time favors the agent. Our work unifies and significantly generalizes many existing results and can also be used to establish monotonicity results in other settings of interest.

Original languageEnglish
Pages (from-to)1041-1073
Number of pages33
JournalTheoretical Economics
Volume17
Issue number3
DOIs
StatePublished - Jul 2022

Funding

FundersFunder number
Ministerio de Ciencia e InnovaciónCEX2019-000915-S, SEV-2015-0563, UE - PGC2018-098949-B-I00, AEI/FEDER

    Keywords

    • D86
    • Dynamic contracting
    • activities
    • seniority

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