Events

Dr. Allen Vong
Visiting Postdoctoral Scholar
University of Pennsylvania

A worker interacts with a sequence of clients under a manager’s supervision.
I highlight a novel role of this manager’s mediation in addressing the worker’s
moral hazard, namely to intertemporally reduce suspensions of the worker’s
service that are surplus-depleting but crucially serve as punishments to motivate
her costly effort. I show that, to best address moral hazard, the manager at
times secretly asks a high-performing worker to scale down her effort against a
current client and implements dynamic correlation by telling the worker that
current underperformance will not be punished. These occasions are frequent in
the short run and eventually disappear.