Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2017

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“LEARNING-BY-SHIRKING” IN RELATIONAL CONTRACTS

Arijit Mukherjee*, Jin Li, Luis Vasconcelos

Last modified: 2017-04-18

Abstract


A worker may shirk on some of the aspects of his job in order to privately learn which ones are more critical and use this information in the future to shirk more effectively. This possibility of private learning aggravates the moral hazard problem. We study the optimal provision of relational incentives to deter the worker from such "learning-by-shirking." The firm strategically discloses information on the role of each job aspect to sharpen incentives and the optimal disclosure policy depends on the surplus in the relationship. Depending on the underlying parameters, the optimal policy may call for opacity, full disclosure, as well as partial disclosure through stochastic revelation.