New and Revised Results for 'Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration'

15 Pages Posted: 14 May 2016

See all articles by Vanessa Kummer

Vanessa Kummer

University of Zurich

Maik Meusel

University of Zurich

Philipp Renner

Lancaster University

Karl Schmedders

University of Zurich

Date Written: May 10, 2016

Abstract

In this paper we present some new results for the dynamic agent model by Iossa and Rey (2014, "Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration,'' Journal of the European Economic Association, 12, 549−574) while also correcting some errors in that article. Iossa and Rey study the performance of an agent who repeatedly receives multi-period contracts and determine the optimal duration of such contracts in the context of an infinitely repeated multi-period agent model. We amend the characterization of the unique Markov perfect equilibrium for this model. In addition, we review the original welfare analysis of the model and either provide corrected proofs when possible or provide counterexamples. Our counterexamples overturn the main comparative statics results of the original analysis. We demonstrate that both the agent's optimal investment decision and the optimal contract duration depend non-monotonically on the information persistence and the agent's discount factor. In the final part of the analysis, we establish new results on the agent's optimal investment decision.

Keywords: Career concerns, dynamic agent model, multi-period contracts

JEL Classification: D21, D23, D86, L24, L51

Suggested Citation

Kummer, Vanessa and Meusel, Maik and Renner, Philipp Johannes and Schmedders, Karl, New and Revised Results for 'Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration' (May 10, 2016). Swiss Finance Institute Research Paper No. 16-32. Available at SSRN: https://ssrn.com/abstract=2779631 or http://dx.doi.org/10.2139/ssrn.2779631

Vanessa Kummer

University of Zurich ( email )

Moussonstrasse 15
Zürich, CH-8044
Switzerland

Maik Meusel

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Philipp Johannes Renner

Lancaster University ( email )

Managment School
Department of Economics
Lancaster LA1 4YX, Lancashire LA1 4YX
United Kingdom

Karl Schmedders (Contact Author)

University of Zurich ( email )

Moussonstrasse 15
Zürich, CH-8044
Switzerland
+41 (0)44 634 3770 (Phone)

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