RT Generic
T1 The value of a "free" customer
A1 Gupta, Sunil
A1 Mela, Carl F.
A1 Vidal-Sanz, Jose M.
A2 Universidad Carlos III de Madrid. Departamento de Economía de la Empresa, 
AB We study the problem of a firm that faces asymmetric information about the productivity of itspotential 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 overtime. We provide a characterization of the optimal dynamic compensation scheme that attractsonly high productivity workers: consumption –regardless of time period– is ranked according tolikelihood ratios of output histories, and the inverse of the marginal utility of consumptionsatisfies 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 arepeated moral hazard problem, the level and the variance of consumption are negativelycorrelated, due to the influence of early luck into future compensation. Moreover, in thisexample long-term inequality is lower under persistent private information
YR 2009
FD 2009-03
LK https://hdl.handle.net/10016/3883
UL https://hdl.handle.net/10016/3883
LA eng
DS e-Archivo
RD 27 jul. 2024