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Title:Competition and the ratchet effect PDF Logo
Authors:Charness, Gary
Kuhn, Peter
Villeval, Marie-Claire
Issue Date:2008
Series/Report no.:IZA discussion papers 3784
Abstract:The 'ratchet effect' refers to a situation where a principal uses private information that is revealed by an agent's early actions to the agent's later disadvantage, in a context where binding multi-period contracts are not enforceable. In a simple, context-rich environment, we experimentally study the robustness of the ratchet effect to the introduction of ex post competition for principals or agents. While we do observe substantial and significant ratchet effects in the baseline (no competition) case of our model, we find that ratchet behavior is nearly eliminated by labor-market competition; interestingly this is true regardless of whether market conditions favor principals or agents.
Subjects:Ratchet effect
competition
experiment
private information
labor markets
JEL:C91
Persistent Identifier of the first edition:urn:nbn:de:101:1-20081126431
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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