Contracting with Repeated Moral Hazard and Private Evaluations

摘要

Relaxing the assumption that output is common knowledge, we were able to explain many features of the labor markets that were at odds with the literature. In particular, we have provided a rationale for the observed wage compression and the use of efficiency wages together with the threat of termination to provide incentives.rnThis information structure can also be used to better understand questions of organizational design and potentially the theory of the firm. In Appendix A we describe how setting up tournaments can be used to simultaneously provide incentives for the Agents to exert effort and for the principal to be truthful.