Contractual Incentives and Career Concerns

Abstract

In a multi-period model of optimal contracting and career concerns, we show long-term contracting with renegotiation dominates short-term contracting if there is non-contractible information. If the non-contractible information is not effectively contractible through renegotiation of long-term contracts, the labor market may play an important role in providing incentives in a world of multiple information sources and several tasks.