Relational contracts-informal agreements sustained by the value of future relationships-are prevalent within and between firms. We develop repeatedgame models showing why and how relational contracts within firms (vertical integration) differ from those between (nonintegration). We show that...

Incentive contracts often include important subjective components that mitigate incentive distortions caused by imperfect objective measures. This paper explores the combined use of subjective and objective performance measures in (respectively) implicit and explicit incentive contracts. The...

Salary data from a single firm are analyzed in an effort to identify the firm's wage policy. The authors find that employees are partly shielded against changes in external market conditions; that wage variation within a job level is large both cross-sectionally and for individuals over time,...

We analyze twenty years of personnel data from one firm. The hierarchical structure is quite simple and stable. Career movements suggest that the employee's rate of learning and the firm's learning about ability are important. There are promotion 'fast tracks.' Exit rates vary little with tenure...

We show that a framework that integrates job assignment, human-capital acquisition, and learning captures several empirical findings concerning wage and promotion dynamics inside firms, including the following. First, real-wage decreases are not rare but demotions are. Second, wage increases are...

The authors develop a dynamic model of learning about worker ability in a competitive labor market. The model produces three testable implications regarding wage dynamics: (1) although the role of schooling in the labor market's inference process declines as performance observations accumulate,...

We analyze a rational-expectations model of price formation in an intermediate-good market under uncertainty. There is a continuum of firms, each consisting of a party who can reduce production cost and a party who can discover information about demand. Both parties can make specific investments...