Optimal Contracts with Randomly Arriving Tasks

Recognition Program

Open Access       

Authors: Daniel Bird and Alexander Frug

The Economic Journal, Vol. 131, No 637, 1905–1918, July, 2021

Workers are rarely assigned to perform the same task throughout their career. Instead, their assignments may change randomly over time to comply with the fluctuating needs of the organisation where they are employed. In this article, we show that this typical randomness in workplaces has a striking effect on the structure of long-term employment contracts. In particular, simple intertemporal variability in the worker’s tasks is sufficient to generate a rich promotion-based dynamics in which, occasionally, the worker receives a (permanent) wage raise and his future work requirements are reduced.

This paper originally appeared as Barcelona School of Economics Working Paper 1147
This paper is acknowledged by the Barcelona School of Economics Recognition Program