November 2006

IZA DP No. 2463: Moral Hazard Contracts: Does One Size Fit All?

published in:Economics Letters, 2008, 100 (3), 399-401.

Incentive theory predicts that contract terms should respond to differences in agents’ productivities. Firms’ practice of anonymous contracts thus appears puzzling. We show that such a “one-size-fits-all” approach can be reconciled with standard agency theory if careers are marked by frequent transitions between employers, and agents have career concerns because complete long-term contracts are not feasible.