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http://hdl.handle.net/10419/57177
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| Title: | | The interaction of explicit and implicit contracts: A signaling approach  |
| Authors: | | Gürtler, Marc Gürtler, Oliver |
| Issue Date: | | 2012 |
| Series/Report no.: | | Working papers, Institut für Finanzwirtschaft, Technische Universität Braunschweig IF38V1 |
| Abstract: | | We analyze the interaction of explicit and implicit contracts in a model with selfish and fair principals. Fair principals are willing to honor implicit agreements, whereas selfish principals are not. Principals are privately informed about their types. We investigate a separating equilibrium in which principals reveal their type through the contract o er to the agent. If this equilibrium is played, explicit and implicit contracts are substitutes. Since the agent learns the principal's type, a selfish principal has to rely on explicit incentives. A fair principal, by contrast, can effectively induce implicit incentives and hence does not need to use explicit incentives. Interestingly, if a selfish principal can rely on more effective explicit incentives, a fair principal becomes more likely to be able to separate from the selfish type and, hence, to make better use of implicit incentives. In this sense, there is a strategic complementarity between explicit and implicit incentives. |
| Subjects: | | explicit contracts implicit contracts separating equilibrium substitutes strategic complementarity |
| JEL: | | D82 D86 M52 |
| Persistent Identifier of the first edition: | | doi:10.2139/ssrn.2031582 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Working Paper Series, Institut für Finanzwirtschaft, TU Braunschweig
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