Economic theory regarding moral hazard at work is somewhat at odds with recent business evidence. Whereas firms in economically and technologically stable environments could apparently follow conventional wisdom when trying to reduce moral hazard through tight supervision and incentive packages,...

This paper considers a two-period optimal contracting model in which firms make new hires in the second period subject to the constraint that they cannot pay discriminate either against or in favour of the new hires. Under an assumption on the information available to workers, it is shown that...

Employee contracts often allow for managerial discretion, such that the manager decides after observing an employee's performance how that employee will be rewarded or penalized. Importantly, the effects of such evaluation outcomes can extend beyond the employee(s) directly affected, because...