Reputation and Hierarchy in Dynamic Models of Employment.

Working paper

This paper explores the nature of employment contracts in a dynamic model when workers vary by unobserved ability, and there is moral hazard on both sides of the contract. We find that even though a worker's ability is chosen from a continuum, the equilibrium contract is characterized by a hierarchy consisting of a finite number of ranks. Reputation effects are modelled as a Bayesian game, and are needed to ensure workers will not shirk. Workers are not immediately assigned to the appropriate...

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Authors: MacLeod, B; Malcomson, J

• Publisher: Department of Economics (Queen's University)
• Host title: Queen's University, Department of Economics, Working Papers
• Series: Queen's University, Department of Economics, Working Papers
• Publication date: 1985-01-01
• Language: English