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On-call jobs: Contracts with lumpy effort
1 : Tel Aviv University
An agent performs randomly arriving tasks that are rare and “difficult,”
and a principal may provide frequent but low-value compensation. We characterize
the optimal contract for both the case where the principal observes the
arrival of opportunities and the case where the agent may conceal them from
the principal. The optimal contracts reveal appealing qualitative features that
vary with the assumed information structure and the players' discount rates.
Unless the players use the same discount rate and opportunities are observable,
the players' ability to realize gains from interaction decreases when the
degree of “lumpiness” in opportunities increases.
