There is a loss of efficiency for the inefficient and medium Agents. With the help of incentive compatibility constraints, each type will choose exactly its dedicated contract. To avoid this behavior, the Principal should propose a bundle of contracts, one for each type.

Such gestures help organizations retain their employees at the same time employees are more committed to their work. If in the situation of informational asymmetry, the worker would offer this type of contracts (of rank I), the company is incited to claim that the very efficient state has been achieved and obtain more labor. An organization can support their employees by providing them with learning opportunities, cross-training, and any other interactive method that support their overall development. In the situation of informational symmetry (optimal of rank I), the optimal contract is also Pareto-optimal, regardless of the Agent type. The utility function of the Agent depends on consumption and work, the disutility of work being evaluated in monetary terms.

The company’s goal is to maximize the profit. The efficiency parameter is specific for each Agent type: inefficient, medium, and very efficient. The Agent obtains a profit quantified by the production function, an efficiency parameter, and the transfer of the company to the worker. To study equilibrium interactions between learning and search, this paper integrates learning into a search equilibrium with on-the-job search and wage-tenure contracts. We will assume that the Principal has all the bargaining power in relation to the company. Firms respond to updated beliefs by altering vacancy creation and optimal wage contracts. In the Principal–Agent model, the Principal can be an individual (worker) or a group of workers that offers labor to a company, which in this case represents the Agent. Lack of information affects the relationship between a worker and the company he works for.

Learning on the job optimal contract