Labour contracts tend to be more complicated than one simple short or long-term contract
which is the basis of previous studies. Combinations of different length contracts become
essential when principals expect to maximize not only verifiable outputs but also observable
but unverifiable outputs, e.g., leadership. This paper is the first to develop a theoretical model
of multi-period contracts that combine short-, mid-, and long-term contracts. We show that
combinations of different length contracts vary by the relative importance of verifiable and
unverifiable outputs and relative efficiency of investments in human capital made for each
output. We also determine thresholds where the principal switches from offering one type of
contract to the other.
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