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The value of a "free" customer

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dc.affiliation.dptoUC3M. Departamento de Economía de la Empresaes
dc.contributor.authorGupta, Sunil
dc.contributor.authorMela, Carl F.
dc.contributor.authorVidal-Sanz, Jose M.
dc.contributor.editorUniversidad Carlos III de Madrid. Departamento de Economía de la Empresa
dc.date.accessioned2009-04-01T17:30:05Z
dc.date.available2009-04-01T17:30:05Z
dc.date.issued2009-03
dc.description.abstractWe study the problem of a firm that faces asymmetric information about the productivity of its potential workers. In our framework, a worker’s productivity is either assigned by nature at birth, or determined by an unobservable initial action of the worker that has persistent effects over time. We provide a characterization of the optimal dynamic compensation scheme that attracts only high productivity workers: consumption –regardless of time period– is ranked according to likelihood ratios of output histories, and the inverse of the marginal utility of consumption satisfies the martingale property derived in Rogerson (1985). However, in the case of i.i.d. output and square root utility we show that, contrary to the features of the optimal contract for a repeated moral hazard problem, the level and the variance of consumption are negatively correlated, due to the influence of early luck into future compensation. Moreover, in this example long-term inequality is lower under persistent private information
dc.format.mimetypeapplication/pdf
dc.identifier.repecwb092903
dc.identifier.urihttps://hdl.handle.net/10016/3883
dc.language.isoeng
dc.relation.ispartofseriesUC3M Working Paper. Business Economics Series
dc.relation.ispartofseries09-29-03
dc.rightsAtribución-NoComercial-SinDerivadas 3.0 España
dc.rights.accessRightsopen access
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.ecienciaEmpresa
dc.subject.otherCustomer lifetime value
dc.subject.otherCRM
dc.subject.otherDynamic programming
dc.subject.otherGMM Estimation
dc.titleThe value of a "free" customer
dc.typeworking paper*
dspace.entity.typePublication
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