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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...
Autores principales: | , |
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Formato: | Online Artículo Texto |
Lenguaje: | English |
Publicado: |
Springer US
2022
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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 |
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. |
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