We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
The optimal disclosure policy when firms offer implicit contracts.
- Authors
Mukherjee, Arijit
- Abstract
The observability of history is crucial for the sustenance of implicit (or relational) contracts. When a firm hires a sequence of short-lived workers, turnover adversely affects the observability of history—the old worker may leave the firm before communicating the history to the young. However, turnover can also enhance profits if matching gains can be extracted up front. Disclosure of the workers' productivity information affects turnover by mitigating adverse selection. Thus, the optimal disclosure policy trades off matching efficiency with the sustainability of implicit contracts. I show that (i) opaqueness can be optimal only for firms with moderate reputation concerns, and (ii) an opaque firm's profit may decrease with its reputation concern.
- Subjects
CONTRACTS; BUSINESS enterprises; EMPLOYEES; ADVERSE selection (Commerce); RISK management in business
- Publication
RAND Journal of Economics (Wiley-Blackwell), 2010, Vol 41, Issue 3, p549
- ISSN
0741-6261
- Publication type
Article
- DOI
10.1111/j.1756-2171.2010.00111.x