Mukoyama, Toshihiko; Şahin, Ayşegül - In: Economic Theory 25 (2005) 4, pp. 831-854
This paper considers the optimal contract when the current (hidden) action of an agent has a persistent effect on the future outcome. The optimal contract in a two-effort choice, two-period setting is characterized analytically and numerically. In particular, we show that persistence tends to...