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The effect of random shocks on reciprocal behavior in dynamic principal-agent settings

Previous work has shown that unobservable random shocks on output have a detrimental effect on efficiency in short-term (‘static’) employment relationships. Given the prevalence of long-term (‘dynamic’) relationships in firms, we investigate whether the impact of shocks is similarly pronounced in gi...

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Detalles Bibliográficos
Autores principales: Kerschbamer, Rudolf, Oexl, Regine
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Springer US 2022
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10129933/
https://www.ncbi.nlm.nih.gov/pubmed/37124082
http://dx.doi.org/10.1007/s10683-022-09771-w
Descripción
Sumario:Previous work has shown that unobservable random shocks on output have a detrimental effect on efficiency in short-term (‘static’) employment relationships. Given the prevalence of long-term (‘dynamic’) relationships in firms, we investigate whether the impact of shocks is similarly pronounced in gift-exchange relationships where the same principal-agent pair interacts repeatedly. In dynamic relationships, shocks have a significantly less pronounced negative effect on efficiency than in static relationships. In an attempt to identify the drivers for our results we find that the combination of a repeated-game effect (current misbehavior can be punished in future periods) and a noise-canceling effect (part of the noise cancels out in the long run) is required to avoid the detrimental effects of unobservable random shocks on efficiency. SUPPLEMENTARY INFORMATION: The online version contains supplementary material available at 10.1007/s10683-022-09771-w.