RIEB, Kobe University

Combinations of Different Length Contracts in a Multiperiod Model: Short, Medium and Long-term Contracts

This paper develops a dynamic contracting model with verifi…able and unverifi…able outputs. We prove the following properties of equilibrium wage contracts, which are new to the literature: (i) combinations of dfferent length contracts can become equilibria, (ii) medium-term contracts can be included in the combinations, and (iii) equilibrium wage pro…le dffers by the way different length contracts are combined. We also investigate a general mechanism, which includes menu and option contracts, and show that no mechanism can perform better than simple wage contracts in our environment. In short, above properties remain valid under general mechanisms.